Interview Circle: If I Could Do it All Again, Part III

SSON News and Analysis
Posted: 07/09/2012

The final part of  the Interview; 'If I Could Do it All Again' between Debra Maxwell, GM Ireland & Global Operations Director for Arvato Finance Services Ltd and Pascal Henssen at the recent European Shared Services and Outsourcing week.

To view Part I of this interview, click hereTo view Part II of this interview, click here 

To listen to the entire recording of this interview, click here

Debra: So tell me a little bit about the skills that you are bringing from the old role that you are bringing into the new role?

Pascal:
Well having been a customer for several years, I have seen a lot of things that worked, and that could have been improved upon. So I think bringing a customer perspective to a BPO is valuable. I think the other thing is having been in a shared service environment in a company for four years, and having dealt with compliance, I think I can help Genpact  to think about, how do you deal with VAT statutory and tax compliance, how do you deal with exotic locations like Kuwait or South Africa or Kenya or whatever? So how do you deal with those issues that a CFO or controller has to deal with at the end of the day? I think getting a perspective is valuable, but mostly the dos and don’ts of learning’s, and how do you translate that to a value proposition for the customer. I was always one of those people asking Genpact, and other providers, because I have used other providers as well, asking them, tell me how I can do this better. A simple example, I used to have a process of cash application outsourced to India, and it was 26 cash collectors collecting a certain amount of incoming cash. Every benchmark that I tried to do myself told me that you should have two people, not twenty six, so to the provider it is great that you can increase productivity by changing my process by digitizing, but I want you to tell me how you get from twenty six to two because I know there are companies that can do that. And I am going to push that agenda very hard to ensure that we give customers real step change improvements, big improvements, not just incremental improvements.

Debra: There are quite a few people starting the shared service center journey, quite a few people well on the way along that path. What advice do you give people starting?

Pascal:
I think really understand the industry, be honest about what you should be doing yourself and what you should be outsourcing, and really make sure that you have a multi-generation plan, don’t think that you are going to create a shared service center, and in five years you are still going to be the same with the same processes still being there. Have the flexibility and understanding to see that it is a business, business environments change, models need to change, technology changes, be fully aware that you don’t create a solution that is going to bog you down for the rest of your life. But create a solution that you can build on, and that you can grow from as your business develops, and your company develops. I think that is the most important one, there is not one solution that is going to be static for the next five to ten years, it has got to be a solution that evolves. Keep thinking about it as a business, the second one is that really it is a business, if you are not profitable somehow, you don’t understand your profitability, even if your profitability is zero, whether you are really there, understand your profitability, your pricing, whether you give your customers the right trade off.

At some point when I joined shared services, we were invoicing our customers about, I think it was 2 Euros per invoice, it was actually AP, and this was back in 2002. Our actual cost was about six Euros. So as an internal shared service centre we were losing four Euros. The reason that why that is so incredibly wrong even though corporate might support and subsidize you, the business, the customers are not making the right decision. They are making the decision to stay with you for two Euros, which is not the true cost to your company. So making sure that you run it like a business, with transparency on cost, you understand your competitive position, is absolutely crucial, otherwise you will become obsolete.

Attendee:  I am preparing for outsourcing a big department, I think all the people in the room understand facts, figures, drivers, KPI’s, business partnering - you are a foreigner yourself like me, with your experience from both sides; what do you think the cultural differences in the BPO being a global industry, that the cultural differences can help or stop successful migrations into BPO?

Pascal:
It is a really good question. I come from a global company, fourteen years in GE, my job in shared services; I actually had people in 45 countries, from the Middle East and Africa to Europe. So the first comment that I would make is that I think, is you have a healthy business culture then it is across boundaries. At least my experience is that if you have a good business culture, an open culture, with good values, that works in every country, it doesn’t matter where you go. I think that one of the things that I would look at, I would outsource, and what I did look at when I out sourced, the first thing I always looked at was, can we work with this company? Do we feel a link about how they think about business, and how we think about business? How they think about customer service, how we think about customer service. I would almost think that if that cultural match is there with that company that you want to work with, it is going to be so much easier to do everything else, so for me that would be part of the criteria, to select who you are going to work with, is there a cultural match? So that’s one.

Then secondly, I think cultural awareness in an out sourced or cultural centre, it is crucial. Again, it doesn’t matter of you do a BPO or shared services, but if you have a shared service centre in Budapest, and you are serving the German market, the Italian market, the French market, the Dutch or the Belgian market, you do have to have the cultural awareness of those countries. And you have to have an understanding of look in Germany things happen differently, if you don’t understand that Germans typically pay their bills on time, but in France they typically don’t, and then you use one KPI to measure both and compare, you have got a big problem. But that is on a process level, but on a personal level I think you need to educate people about that, I think you need to spend time on that with your teams.

Attendee: I want to go back to that example where you said you had five services that you were consolidating into one BPO, and you had success with three of them, but not that much success with the other two; the two people who did not succeed as much as the other three - was the risk of losing their jobs a reason not addressed by you?

Pascal:
Absolutely not, because those five absolutely knew that they had a job because we had such complex statutory law, VAT processes that were going to stay in country for huge amounts of legal entities. They didn’t have any risks to their jobs, it was more simply that they, once the process was transferred, they got into the mode of it is their fault. Rather than taking ownership for the process themselves, and saying I am responsible for delivering, whether it is within house or outsourced  resources, I am the person who is responsible in delivering results. So the only difference was in attitude, and leadership styles of the managers.

Attendee: We all know the drivers for people to outsource the costs, the savings, the efficiencies, we are hearing more and more about knowledge process outsourcing, you know moving up the value chain to create some sort of strategic impact. You have already referred to the fact that a BPO can act as more of an advisory capacity. Have you got examples of where you have seen this creating strategic advantage, and would you anticipate that potentially a shared service center would have an advantage over a BPO, in the fact that a shared service centre would understand the organization, and specifically that industry?

Pascal:
There are a lot of points in your questions; there are a lot of elements that I could address. First of all, I think that one big question when you outsource, one of the decision points in shared services or out sourcing is knowledge, the discussion goes two ways. First of all, you might have contextual knowledge that is important for the long run that you don’t want to outsource because you need it in your company, and you have got to be careful that you don’t have a knowledge drain. Very complex tax structures that you have in place in your organization, should you outsource all of your tax work? Probably not because there are going to be ten years’ worth of tax returns that need to be done, and are going to have a multimillion dollar impact on your company.  You need some continuity.

On the other hand though, those processes where somebody else has much more knowledge than you do, so the contextual knowledge is not as important but one of your provider’s may have tons of knowledge in doing that process efficiently and properly. So knowledge is even a two way street, you might actually outsource because you need, and want knowledge, you need it in house, you want to leverage someone else’s experiences. If you talk about where do we improve customer processes, again, I have only been four weeks with Genpact, all the customers are asking for it, and continuously we are mining opportunities, and trying to have the teams learn, ok, you ought to apply ninety percent of your cash, another customer ought to only apply ten percent of their cash. So why is one customer able to apply ninety percent whilst the other only can apply ten? Let’s transfer that learning, however that only works if the customer is also open to that and the customer is interested in opening and changing the processes. And then your other question comes in, in terms of transformation, shared services might in some cases have an easier job of convincing people in the company to change their processes, however I have also seen many shared service centers where even though it might be theoretically correct, the shared service center had no influence whatsoever, in trying to get a CFO to change the process, so while in theory that might be true, they actually dealt with the same problem that as the BPO provider did. And that comes back to the discussion earlier, that if you have a shared service make sure that they report to a senior enough level to actually influence the processes across all of your divisions.

If you outsource, maybe don’t centralize, you might not need a shared service center, or you might, depending on your specific situation. But it might help to manage potentially the outsourced relationships. I have seen customers that have outsourced their AP process from ten different countries to one provider, and then claimed that they have centralized AP process, while in reality, some of them scan, some of them don’t, some of them use PO, some of them have SAP, some of them have Oracle, but they claim to their CFO that they have one centralized AP solution because they gave it to company ‘C’. So ultimately it is about where you want to be in the future, from a process standpoint, you have the CXO support to get there, and then find the solution that works best for you, shared service or BPO. And for me, shared services works for some processes, but others are much better suited for BPO to gain that experience.

Attendee: We saw yesterday the presentation about the different locations and Central Eastern Europe was called a winner; you made quite a statement here about Budapest;  if you could elaborate on that a bit? I am not from Budapest, but from central Europe, Krakow.

Pascal:
I think it has been overfished, over the past five years. I think it is very tough to get any combination of language and technical skills anywhere in Budapest, at the moment it is very difficult. For experienced resources you have to pay a lot of money. I think especially for the senior leaders, when you talk about operation managers etcetera, the price has gone up almost more, than the cost in the US to get some of those roles filled. So I simply think that for a relatively small country there has been too much influx of BPO’s and captives, and the problem is that captives, when they decide on a city, they can almost spend whatever money they want, especially if they are not running it like a business. Because they are not always measured on a bottom-line, and therefore they can say we desperately need an operation manager, so let’s double their salary. And that is what has happened in Budapest over the past five years. So I honestly think that it is not a great place to come right now for a shared service centre, maybe the economic recession will change that a little bit, there will be more availability on the market. But it has been a nightmare, I actually had a shared service captive team here, so I was a customer of Genpact in Budapest, but I also had a team that did all of the statutory and all the VAT reporting, which some of you may know that it is not the easiest country in the world to do that. And we had people even there, hiring them in General Electric in senior accountant positions, they would join and then a week later they would go, because they got a better offer. And that didn’t happen once, it happened again, and again. So for me, temporarily, I think it is a tough place for me to be if you want to create a new center. You look at the data, you look at how many people come out of University, what are the skills etcetera, it is becoming very tight just because of the huge volume of inflow, of shared service work. So it wasn’t a comment on Central Europe, it was a comment on Budapest.

Attendee: Graeme Russell from Astra Zeneca; the build question Pascal, if not Budapest, then what other locations are you seeing in Central and Eastern Europe, that you might recommend for today or you see on the rise in the next five years?

Pascal:
Well there’s a lot of data on it of course; first of all I think that there is still a lot of opportunity in Poland, and this is purely based on my personal opinion based on the data that I have seen. There is a lot of opportunity still available in Poland, there is a lot of opportunity still available in Romania, and I think there is still opportunity in Czech Republic and Slovakia. But also there, the dynamics are changing a little bit.

The big question that I think is going to hit us all for anybody thinking about new locations is what is going to happen in the French outsourcing market, and what is going to happen in the German outsourcing market, and if those markets have been very limited so far in terms of how much...there are very few French or German companies that have really started outsourcing, or moving shared services offsite. I think that most of them are actually in country, when those start to actually move in the market, then you are going to get thousands of Germanic and French speakers, as those are going to be needed, I think that that is going to change the landscape a little bit. And in my view that is going to make western Poland popular, it is going to take parts of Hungary, and parts of Czech Republic to be popular. But it is going to change the landscape a lot. For me it depends on what happens on those two markets, that’s going to be a totally different demand question, when those really open up.

Attendee: Pascal you are obviously very energized, and you earlier mentioned that we are a young industry and the landscape is constantly changing. I mean, if you look into your imaginary crystal ball, what do you see as the main risks and challenges for the industry in the coming years and months ahead?

Pascal:
  I think we kind of eluded from it a little bit already, from either of two things one is how do you marry local compliance, and local requirements and local language requirements with European processes? Do you reduce the need for language or do you increase the number of sites that you use in order to provide the services; I think that’s one dynamic that in every negotiation or discussion that I hear, that is a central theme. So it’s looking at local versus central, and the second thing is, how are all the BPO companies with their years of experiences, how are they going to use that experience and knowledge to help their customers become better? So I think that it is no longer enough to be able to provide a process to the customer from a cheaper location, it’s about how do you create business impact for my company? How do you increase my cash flow? How do you improve my terms with my suppliers? How do you get deflation in my indirect buy? Those are the things that are going to drive the relationships rather than, are my bills getting paid on time, like they were before? So I think the whole value proposition of the BPO companies is going to change to much more prescriptive, helping clients to transform, rather than just providing labor arbitrage.


 

 

SSON News and Analysis
Posted: 07/09/2012

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