How do you stabilize an outsourcing deal?
AS: Welcome to the Shared Services Podcast. I’m Amber Scorah . Today’s guest is Patrick Cassity, Global Shared Services Leader for Owens Corning, a Market Leader Innovator of Glass Fiber Technology. He’s going to talk about what it took to move from a 16 year old captive to an outsourced operation, the reasons for change and looking forward, and the opportunities he sees ahead. So welcome to the show Mr. Cassity.
PC: Hello Amber.
AS: What have been the major challenges thus far at Owens Corning, in terms of your outsourcing journey, and how did you overcome them?
PC: Great Question. To give you a little bit of context for my answer, we had captive shared service centers at Owens Corning all the way back to 1993. When we made the decision to outsource in late 2009, it was a big culture change for the company. One of the more effective things we did was to put together a task force that met with our major stakeholders on a regular basis. In the beginning, this was done on at least a weekly basis and then as we went through our transition, each of us on the task force was assigned a major stakeholder. I had all of our processes that dealt directly with customers and I met with those folks on a regular basis to keep them up to date in terms of where we were and to make sure I had their feedback and concerns addressed on a regular basis.
Another challenge we needed to deal with, aside from just the culture change, was making sure we had a good plan in terms of how to transition from all these folks who were OC employees, and who would ultimately be dismissed. One of the things we did very early on, for example: we had a service center in Charleston, West Virginia, that has about 100 employees. From the beginning, we spent quite a bit of time there working with our HR team to provide a fair severance package. We also worked with officials from the state to put together further separation benefits, which provided enhanced education as well as unemployment benefits, should these be needed. The combination of communication and "the package" that was available to people provided them with enough incentive, and pride, to stay on through the transition. That made our life quite a bit easier.
AS: Let’s talk about the Financial Crisis. What impact did that have on your Outsourcing arrangement – and how did you deal with it?
PC: The Financial Crisis is actually what triggered us to move to an outsourced arrangement. Prior to the FC hitting in 2007-2008, we had three captive centers globally. I mentioned our captive center that supported North America, based out of West Virginia. We also had a center of our own in India, which supported our Indian operations as well as some global F&A processes; and then we had a third center based in the UK, that supported our European Operations. When you look at the costs we incurred to run our centers in the US and in Europe - as we benchmarked ourselves against competitors, we found we were top 10% percentile in terms of cost to operate, so that was encouraging. But in the end, as we looked to outsourcing this work, we were able to cut our costs by over 50%, which ultimately provided millions of dollars to the bottom line in the first year -- as well as in subsequent years. And our business, which is so closely tied to home building and home starts, probably took a bigger hit than many others did during the recession. And so, as we were in survival mode, being able to contribute several million dollars to the bottom line was, quite frankly, too attractive a proposition not to act upon. So the obvious financial benefit of moving this work offshore was certainly there. The other benefit of outsourcing was that we had done a couple of acquisitions in the past few years, especially in Europe and Asia Pacific, and whereas we didn’t have much of an operational footprint there previously, we now have a partner who is able to scale up and support us in those regions much more quickly and, frankly, more cost effectively, than we could have done ourselves. So while the decision to outsource was made for financial reasons, at least at the start, we are now seeing additional benefits just in terms of speed, which I don’t think we could have achieved on our own.
AS: Now that you’ve transitioned from a captive to a third party, can we talk a little about the retained organization? What does it look like? Or should we say: what should it look like?
PC: This is a pretty popular topic of discussion and something that, as we went through our journey, I talked about with several peers that have gone through the same transition.
What should it look like? The answer I hear most often is that, typically, you are going to retain 10-15% of the staff, who will form the retained organization. We took a different approach. If you think back to the reasons we did our transformation, a lot of those were cost based - so we had more aggressive goals than, perhaps, would be typical in a situation like this. Out of three captive centers with a total about 150 people, we retained four roles. We kept process experts who were in functional areas that we had supported in shared services. We modified their roles, though; so, for example, I have people that are in our retained organization that don’t necessarily report up through me. They report up to the business functions - say customer service, marketing, logistics operations, etc. And we worked with those stakeholders to be clear on what the responsibilities should be for those people. As a result, these folks are now probably more involved in the operations shared services than when we had our captive center. Because prior to that, in our captive centers, we had a lot of not just transactional expertise, but also operational expertise. When we made the decision to move things offshore, one of the reasons people were uncomfortable was because they felt that, over the years, the operational knowledge for those processes had moved away from the business and into shared services. So we had to rebuild that.
Now with all that being said, and having completed this transition about a year ago, one of the things that I’ve done is I’ve gone back and done an assessment of the shape we are in, from a support perspective, from the outsourced services as well as from major stakeholders here at OC. As a result, for a few roles, we made the decision – and got approval for – to bring back certain expertise into shared services, where we saw a gap. This was either where we were not able to convince the stakeholder that we needed to have someone available to us for a certain amount of time; or that expertise simply didn't exist.
So in some cases we retained people who had been part of the SSO on an interim basis, and based on what we’ve seen and the complexity of our processes, we’ve done an about turn and decided to retain those people after all. I would say right now, compared to the "ideal" model of retaining 10-15% of the organization … we are probably in the 5-6% band.
AS: Thanks, Patrick that has been very informative
Meet Patrick Cassity and hear him talk more about the sourcing choices at Owens Corning: Join us in Dallas September 20 -22 for SSON’s Finance Transformation Event.