Genpact Roundtable: Preparing for the Upturn

As part of the SSON Online Order to Cash series, Genpact recently held a roundtable to assess what is currently happening in the Order to Cash area. The session also explores the Smart Enterprise Processes (SEP).

*View Printable PDF of this roundtable 

*View Part 2: Benchmarking 

*View Part 3: Technology

Moderator
MA: Mark Wood

Participants
FR Frank Cocuzza
HE Hernan Lopez Varela
BO Bob Shultz
SA Sanjay Srivastava
SH Shantanu Ghosh
CL Clive Newman
FE Fernando Alandia
DA Dave Schmidt
PR Prakash Hariharan

Introductions

MA Good Morning everyone, my name is Mark Wood and I lead the Order To Cash Practice (OTC) at Genpact.  The objective of this session is primarily to understand what is happening in the OTC area from your perspective and help guide Genpact in the direction we are taking with our OTC Smart Enterprise Processes or SEP.  As I have shared with all of you, SEP is our science around managing business processes and it is our brand.

Order to Cash is very important to us and clearly to our customers as well.  It is one of our largest practices within our Finance & Accounting business, which is the largest business at Genpact.

With that as the background, can we have a quick round of introductions starting with you Frank?

FR I’m the SVP, CFO of Penske Truck Leasing – I’ve been with the company about 30 years and basically, in my case, all of the Order to Cash responsibilities fall within my framework.

HE My name is Hernan Lopez Varela. I used to be the Senior Director of the Global OTC Group at Yahoo before moving over to help lead the integration between Yahoo and Microsoft. I started in our Shared Service Centre in Dublin and moved to the US a couple of years ago to address some major issues in the OTC arena. Since then we’ve been working with Genpact in outsourcing and improving some of the processes here.

BO My name is Bob Schulz; I’m a founding partner of Quote to Cash Solutions (Q2C) LLC.  Q2C began in 2001 and there are four founding partners and various associates of ours around the country.  Prior to that I was a credit professional and managed other administrative support functions including customer service and order entry in global corporations.  In my last corporate role I was responsible for global credit and customer finance at Sony Pictures Entertainment.

SA I’m Sanjay Srivastava, CEO for Akritiv Technologies. Akritiv is a cloud-based provider of software as a service for automating the Order To Cash cycle. We provide solutions for Credit, Collections and AR automation.  Previously, I was senior vice president for SunGard and ran global sales for AvantGard; and prior to that I was founder and chief operating officer of Aceva, also focused on working capital optimization software.

SH Shantanu Ghosh. One of my jobs is to lead the overall finance and accounting practice for Genpact, which as Mark said is our premier service line – so that includes the Order to Cash, the Record to Report, Source-to-Pay offerings . I’m delighted to have this group here – I really wanted to just echo Mark and thank everyone for taking the time and helping us lead the thought leadership process on the Order to Cash side.

CL Clive Newman; I’m Vice President Finance for Diversey Europe, Africa and the Middle East. I’m responsible for Finance which includes the Accounts Receivable component of the Order to Cash process.  We’ve had a successful relationship with Genpact now for about three years, outsourcing General Accounting, Accounts Payable and T&E.  In Europe we operate in just over 30 countries and are the leading cleaning chemicals and related tools, machines, equipment and services provider in this geography.

FE My name is Fernando Alandia, Global Finance Director at Invensys.   I’m responsible for the Order to Cash process. I joined Invensys three years ago after spending numerous years with Honeywell Corporation and Bechtel Corporation. My primary responsibility at Invensys is establishing improved Order to Cash processes and three years ago we began our partnership with Genpact to implement global process change in the Order to Cash arena, and also moved several of our regions operations to the Genpact footprint, both in the North America region as well as Europe.

DA Hi, Dave Schmidt. I hate to admit that I began my credit career in ’76 with Dun and Bradstreet, not because it was Dun and Bradstreet, but because it was so long ago. I spent about 17 years as a commercial credit manager, and then in ’94 I founded A2 Resources, which is a consulting firm. My focus at this time is as an industry analysis in terms of receivables, credits and collection; technology. I’m the author of Power of Collecting published in ’98, which is the seminal text on automating the collection’s process, and I continue today as a contributing editor with Credit Today newsletter, which is a monthly publication

PR I am Prakash Hariharan, Vice President, Order To Cash SEP Leader at Genpact. I am responsible for building and refining the Order to Cash SEP offering and ensuring that we add significant value to our clients using this framework to improve their key business outcomes.

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Section I:  Recovery in the post ‘Great Recession’

MA The first topic relates to the speed of our economic recovery. Organizations are deciding whether they should be investing for growth or preserving their cash. With that in mind are you looking at commercial risk differently today as compared to the past and have you changed any policies? Frank, your thoughts?

FR At Penske we’ve not changed our core approach during this business cycle. We’ve been through a number of such cycles and the current period has actually reaffirmed the strength of the overall structure we have for managing risk, which is managing our assets so that we can flex them better, having a real strong collections programme, and managing the outstanding delinquencies and  bad debts which is something we’ve been doing with Genpact since 2001. All I can tell you is that our results in the last two years are such an improvement over what they were in the ’01 to ’02 period when we were just establishing the Genpact Collections operation.

So really we’re not doing a lot different on the Commercial Risk side.   We’ve always had a strong emphasis on managing risk.  We’ve tweaked certain things, but our overall business model is really strong and we’ve come out the other side of this recession feeling pretty good about our approach to risk!

MA Thanks Frank, Fernando, how about at Invensys?

FE I think we echo Frank’s comments.  Invensys’s performance during recent events in the market was really a true test of some of the Order to Cash changes and improvements that we’ve made over the last two years.
Our growth model in the recent past and for the upcoming years is really in the emerging markets. We had to take a very focused approach on how we were measuring risk in parts of the world where we don’t have the infrastructure and the maturity of the markets that you may see in the United States and Western Europe.

We took the approach of focusing the finance’s organisation involvement in what we call the front end, or pre-contract stages of our review of customers.  We placed an emphasis on political risk and better measurement of customer credit status and looked very closely at the terms and conditions of the agreements that we were signing.  This was important to protect ourselves in terms of any contractual issues that might arise.   More importantly it was to ensure that the practice of generating milestone revenue did not put us in a position where we were creating large pockets of unbilled revenue that we could not convert to cash quickly in the event of certain markets or customers turning bad. So in that sense, our view did get changed.  We adopted the same approach and rigor to compliance as a US based publicly listed company.  It is rendering a better process for us on the front end of making our financial decisions in terms of risk.

MA Thanks Fernando. Given that a number of our customers are experiencing growth in the emerging markets, and Clive, you’re overseeing that area, how are you guys over at Diversey addressing the emerging markets and the risk associated?

CL We basically re-wrote and tightened our credit policy at the beginning of last year, especially in regards to the enforcement actions governing when to place customers on credit hold. We did that for Western Europe as well as for our emerging markets; we tend not to distinguish between the two. We find that some of our credit collection challenges are as great in Southern Europe, particularly at the moment given the economic challenges faced, as they are in the emerging markets.

Our tightened framework defines the minimum policies you would expect to be in place and enforced – payment terms, the calculation and setting of credit limits, credit hold conditions for customers, and I think as a result of that we are certainly moving more quickly to block customers when they go over their credit limit and/or have outstanding invoices overdue. So I would include Southern Europe at the moment alongside the emerging markets as a location for scrutiny and our teams are giving it escalating attention.

We also did a number of other things, not necessarily related to policy. For instance, we made an organisational change to increase focus on AR with centralised AR leadership reporting directly into the regional office –we increased focus and awareness a lot in that way. We also implemented an incentive scheme for AR in our cash collection teams, to groups that wouldn’t normally get variable pay incentives, and this has also had a significant positive impact on collections.

MA This brings up an interesting topic.  My question to the entire group:  Have any of the organisations you support, or that you work for changed their compensation structure for sales and tied it to cash collected versus top line growth?

DA If I can just interject. I was on a panel at NACM a couple of days ago and we asked that very question of the group, and it was a discussion about deductions and vendor compliance. There were probably 60 people in the room and only one person raised his hand indicating that sales compensation was on cash collected.

CL Our Italian business has a business model whereby we operate almost entirely with commission sales agents – their compensation is 100% cash based so they only get remunerated for a sale that has been collected – that’s at the extreme end of the scale.   However, we did drive our variable compensation scheme for sales personnel to include a greater weighting on profitability type measures and collections.   Now on average, up to 25% of variable compensation is linked to overdues or DSOs or some measure of collection.

BO I was also at the NACM conference and gave two sessions there. Between the two sessions, about 170 people were in attendance and we touched on this a little bit and I’ll chime in with Dave – really very little of this is done. One thing that was brought up by a few companies was the introduction of a heightened level of communication and very granular reporting by the credit people. At one company, which I think had an excellent approach, breaks it down so that each sales person is very aware of issues that they are accountable for with their particular customers.  There is no tie in to compensation.  They take a more collaborative approach.

SA Actually, we have worked very closely with some high tech corporations and I would say that we’re starting to see a trend in that segment.  Granted it may be segment specific, but there seems to be a pretty strong move towards companies starting to evaluate and build in plans that tie cash, not just sales, to compensation. I would say personally, I know this is the case for companies that we’re working with at the executive compensation level, and now they’re trying to push it down to the sales level as well – so that’s a little broader perspective in terms of the companies we are seeing.

I might also add on the previous question that we work with corporations across the spectrum, many of whom currently don’t have processes as advanced and mature as the ones that are represented at this forum, either directly, or via Genpact’s involvement. One of the huge learnings I think that’s come out of this great recession has been the concept of agility, and across the board we see a real strong focus on this.  How do you become more agile in the Order to Cash operations and be able to react to situations like this? I think a number of companies found themselves flat footed as the game changed, and want to set themselves up for greater business agility.

So I think, just picking up the point around granularity and extending the concept, a key question is how do you look at risk and address these across multiple geographies and emerging markets?  How do you segment and treat them differently at a granular level and not use a one shoe fits all approach?  In addition to segmentation, you need the ability to enforce unique processes across these segments, and then have the agility to turn them around as the markets turn.

BO When you put the footprint of reality on this, not all companies are, as Sanjay just said, as enlightened or as fortunate as the companies on this call.  This topic has surfaced in conjunction with my consulting activities and during speaking engagements with trade groups this past year.  The reality is that most companies are struggling with a customer base that has a difficult time getting financing.  That leaves them little choice but to look to their suppliers for financing.

If a company is selling to a very large customer the terms are often being dictated to them as a condition of keeping the business.   The reality is that implementing this granular approach is very difficult for the average credit professional.  They are struggling in an environment where the credit department has been downsized.  On top of that they do not have adequate investment in systems and infrastructure over the last 18 months.  It’s a difficult balance to deal with the day to day workload and to do what best practice would tell you to do in terms of credit policy and due diligence.

Also, when there is such a great force in the company to build the top line, improving the collections performance is really tough. It is difficult to make improvements we all know would be the best practice approach when faced with the top line pressures. What people ought to be doing is coming up with creative solutions to get the business and still maintain some sensibility in their credit policies.