HP: Building Sustainable BPO – Les Mara
The economic climate may have prompted some companies to consider BPO for short term cost savings. But as Les Mara of EDS, an HP company, explains to FDE, any service provider worth their fees will help clients seek out long-term value and thereby enhance the strategic advantage of BPO.
The quick fix of cost savings often clouds over the real potential of business process outsourcing (BPO), particularly in times of recession. Service providers have long been telling prospective clients that this is not where the real value of BPO lies.
Many sectors of the BPO market have attracted interest during the downturn, including finance and accounting (F&A). However, although companies certainly appreciate the tactical advantages BPO offers, many are also keeping in mind the strategic benefits of engaging external service providers to handle processes that are key to the business but not core areas that require in-house expertise.
Ideally, a sustainable BPO strategy will offer some quick wins but its main focus will be long-term process improvement and the ongoing generation of business value.
"In my experience it is more about business maturity than the recession. Nevertheless, the downturn creates urgency around the BPO debate. In organisations of all sizes most executives know that they can’t be world class in all aspects of their business model. When they invest in enabling technology it should be centred on their value proposition and targeted at their core competencies," says Les Mara, head of business process outsourcing EMEA for EDS, an HP company.
"For many aspects of a business model it is better to buy in services from a specialist provider. That mature view of the business model is what is driving the intellectual stimulus for the BPO market."
HP’s acquisition of EDS has most certainly established one of the world’s largest players in the BPO space. Prior to the acquisition, both companies already had a considerable BPO footprint. In 2005 EDS formed the ‘ExcellerateHRO’, a joint venture with Towers Perrin. One year later, they acquired MphasiS – a major Indian BPO player. HP, on the other hand, powered into the F&A BPO space on the back of a $3 billion IT outsourcing deal with Proctor & Gamble in 2003, having gained great acumen for its own global F&A shared services operation that was processing in excess of four million invoices a year. Mara, who had headed up BPO EMEA for HP is now responsible for the merged entity’s BPO offering in EMEA.
"The classic post-acquisition synergies are being leveraged, thanks to our complementary value propositions and gearing," notes Mara, who also believes that F&A will remain one of the most active sectors in the broader BPO space.
‘In large- or medium-sized organisations operating on a regional or global basis you will find that the majority of CFOs have considered or are currently considering outsourcing some or all of their F&A processes. In the current economic climate, the outsourcing of F&A has become an increasingly attractive proposition over insourcing for companies, as the drain in resources associated with financing and operating one’s own shared service centre mounts up. It is hard for companies to make a sustainable shared services proposition. The BPO market is mature now and is capable of global delivery,’ adds Mara.
"CFOs are being asked to become better business partners, and to offer more control and insight. To fulfil their accountability they would benefit from access to a well-run shared services model and better use of the data in their F&A business process."
Better, faster, stronger
Outsourcing F&A processes enables CFOs to increase process consistency, ensure compliance with regulatory requirements, improve governance and control, and achieve greater visibility of how the organisation is performing.
‘Business performance and agility improve because you are simplifying what the business is doing, and you are reducing the demand on management bandwidth. In world-class wellrun companies, CEOs and CFOs understand the importance of focusing on core competencies. At HP, our CEO Mark Hurd is committed to growth, customers and value – everything else is managed through arrangements such as horizontal shared services,’ Mara explains.
The result of this focus on core elements of the business plan, coupled with a willingness to hand over noncore competencies to specialist service providers, gives a company like HP a more efficient cost base and enables it to be more responsive to the changing needs of its customers and more agile in the face of fluctuations in key markets.
"Other well-run companies such as Procter & Gamble pursue a similar kind of strategy," adds Mara.
BPO can often be the key enabler of business transformation, either for an entire organisation or for a business function like finance. Clients seeking transformational BPO in the F&A space may start out, for example, by moving some of the workload offshore in the early stages to attain quick wins from standardisation. Next comes process optimisation, disintermediation to reduce the number of people involved in each process, and the pursuit of improvements in the technology and tools being used.
F&A BPO can also bring the might of data analysis to bear on the management of the wider organisation. The huge stream of financial data from processes flowing through a service provider’s transaction hub could be the source of vital information on how a business is performing and how further improvement could be made.
With predictive software and a team of analysts, such as EDS has in India, a company can potentially guard against catastrophic events such as the failure of a key supplier or customer. Analytics based on the flow of information in outsourced F&A processes could give companies the foresight that could help them through volatile, unpredictable times.
"Once you have the throughput in a shared service centre you have an incredible view of data. There are a lot of data mining opportunities that can give you an insight into business dynamics. You get a more predictable view of your business, which is a great upside, but it has not yet been fully exploited in BPO," believes Mara.
Taking advantage of the transformational nature of F&A BPO, or implementing the in-depth analysis of data in the shared service centre, demands a long-term view of the engagement of an external partner. The choice of partner, therefore, is crucial.
"If you are outsourcing financial processing then you want to deal with a scale player; a brand with longevity and durability. F&A outsourcing means a service provider takes some responsibility for things like working capital and payments, so you need a company that understands global accounting processes and has high integrity," says Mara.
It is not enough, he believes, to engage a service provider that offers nothing more than clerical admin services. Domain expertise is a must, as is the ability to partner effectively with clients in order to foster a relationship in which both sides benefit from continuous process improvement.
"The best partnerships need a very engaged model. Good relationships are built on mutual incentivisation to change and improve processes. A sustainable contract and the release of business value only comes from a creative and collaborative partnership," says Mara.
Mara urges companies to look beyond the lure of cost savings and consider how to develop sustainable F&A BPO strategies that deliver value year after year, not in a quick hit up front. After all, exchange rates are volatile and labour rates are steadily rising in many of the offshore locations that trade on labour cost arbitrage.
Over time he sees the cost differential eroding, so the future value of F&A outsourcing will ultimately be determined by improvements in the technology and tools that handle financial processes. His advice is to select a service provider that can deliver that technology enhancement and support a sustainable BPO strategy.
"In doing so, companies will realise long-term strategic value, not just tactical gains. ‘Mess for less’ is not a sustainable model now. A sustainable strategy means disintermediation of labour and work flow content from F&A processes," he remarks.
He is pleased to see that many companies already appreciate the wisdom of that message, and he is confident that companies that can maintain a strategic approach to BPO will soon start to see real business value accrue from their relationships with service providers who share that long-term view and can form close, collaborative partnerships with their clients.
"Some companies may be looking at the number of people multiplied by the cost per person, then set a goal of reducing that cost by 30%. I say that is important, but what about the working capital benefit if a company can reduce its Days Sales Outstanding? That will deliver a greater monetary gain than any labour cost arbitrage."