Outsourcing Can Improve A/R Performance and Customer Satisfaction
When the going gets tough, the tough get going, and that's exactly what Lucent Technologies, a global leader in telecom equipment, did in 2002, when difficult economic conditions prompted management to realign its strategy and streamline the business. As the sector continued to deteriorate, however, with no sign of imminent market recovery, Lucent relied heavily on the strength of its leadership team to evoke the internal changes necessary to maintain their leading market position.
Their efforts would include a fundamental restructuring of the company and spinning off of many non-core businesses to raise cash. To streamline the business, Lucent’s management decided to focus on three key areas:
- next-generation networks for fixed line operators
They also introduced a strong business partner program.
Lucent's new strategy required a restructuring of existing back-office business processes, including the administration of accounts receivable (A/R). Seeking to optimize its cash position through improved A/R management, Lucent required a flexible, yet scalable resource to be able to manage the firstparty collections and dispute management process for its European customer base.
A/R management in the region consisted of 17 independent ERP systems covering 47 different countries – with an assortment of languages, cultures and operating practices. Visibility and management were difficult, and lines of responsibility and accountability often blurred.
In an effort to improve control, Lucent's management team decided to centralize many Finance & Accounting activities, including Invoice-To-Cash (I2C™) into a shared services center. However, from the outset, Lucent's centralization efforts were marked by challenges. Disparate systems, inconsistent processes, and a lack of dedicated resources complicated the transition and were time consuming. Facing major internal concerns around theoutsourcing of critical processes, including the direct interaction by a third party with leading customers, and the fear of losing control over key processes, the company acted quickly to improve performance for its global customers via an outsourcing services provider.
A Complete Solution
Lucent partnered with Equitant, a provider of business transformation solutions focused exclusively on managing and optimizing the Order-to-Cash cycle, for this project. The outsourcing solution involved the complete transformation of Lucent's processes and technology, thus addressing all challenges at once. This solution strengthened Lucent’s capabilities for cash-collection, dispute management, and executive oversight – all within a four-month period. The partnership brought about immediate changes to the company’s A/R process: people were expertly recruited and training programs were implemented. The outsourcing partner’s dedicated transition team, responsible for process development and technology integration, embarked on a centralization effort that included transforming Lucent's Invoice-to-Cash processes in order to target and capitalize on 'early opportunities' in A/R, focusing in particular on opportunities within Lucent's top 50 largest accounts.
Fully implemented, this outsourcing solution now manages all of Lucent’s European revenue and supports nine languages in 47 countries. A dedicated, central staff is trained extensively to equip them with everything they need to serve as the single A/R point of contact for Lucent's customers.
With the addition of bespoke technology, Lucent significantly reduced the time needed to solve disputes, and gained dramatic increases in control and pan- European visibility of its A/R function. As a result, its management team is now able to continuously monitor performance and isolate process deficiencies quickly.
The outsourced solution also significantly reduced the administrative burden on Lucent's sales teams - and increased their visibility into the I2C™ process, freeing them to focus on their core competencies of maintaining customer retention and increasing revenues. One of the biggest challenges, however, was getting the buy-in from the individual countries. They were reticent to turn over the cash collection, dispute resolution and complete ownership of the A/R process. Once the outsourcing provider had demonstrated its effectiveness and expertise, particularly in identifying payment issues, solving problems, and getting their payments in faster, they quickly changed their minds, however.
Immediate Performance Improvement
Complicated transition processes can typically result in performance deterioration related to such issues as integrating data and processes from multiple ERP systems for centralized data repository, developing a new A/R service model, and centralizing and automating people and processes. In Lucent's case, such performance problems were avoided.
A smooth transition was crucial because no business can afford to simply stop collecting cash for a few months while it converts to a new solution. Although the transition - which included transferring personnel and migrating customers to the new solution in phases - originally had been scheduled to take 12 months, it was achieved in only four. Once Lucent began to see the results, accounts were moved out ahead of schedule so Lucent and its customers could more quickly reap the benefits of the improved A/R process.
"Customers recognized the benefits right away," says Jack Wijthoff, CFO EMEA Asset Management, Lucent. "We used to have multiple people contacting each customer. Now we have just one interface. The minute a customer has a question, our outsourcer can answer them."
The fact that Lucent was able to transfer a number of personnel to Equitant also contributed to the smoothness of the transition. But although the system was fully integrated well ahead of schedule, Lucent made sure that the transition also included thorough testing of software, applications and Equitant's ability to manage the process.
The resulting improvements were quick and significant. Equitant was able to achieve a significant reduction in working capital in Europe through collection of past-due receivables for Lucent in the first year of the new A/R process. Percent current A/R improved from 55 percent to 92 percent during the first year, and invoices collected within terms increased from 20 percent to 73 percent in Europe. This performance was not only sustained, but also further improved during the second year.
Improved process expertise and automation, which bring a greater level of speed, flexibility, and accuracy to the A/R process, allows Lucent to understand customers in new ways to reduce disputes and increase sales. In addition to the improvements in customer satisfaction and cash flow, sales personnel can now spend more of their time on more profitable customer relationship activities, instead of dealing with problems and putting out fires.
After seeing just one year of such impressive results - involving the cost-effective service, balance sheet improvements, and increased customer satisfaction - Lucent extended its outsourcing agreement for six more years.
An Alignment of Goals
A key element of the outsourcing agreement is the alignment of Lucent's working capital objectives, business strategy and performance targets with Equitant's expertise and performance-based outcomes. At the start of the relationship, Lucent's management stressed its commitment to being customer-driven while improving working capital and enhancing operational efficiency in a difficult economy. Increasing enterprise-wide visibility, flexibility and control were the primary objectives of the outsourcing arrangement. The outsource provider was willing to commit to achieve these goals by sharing the risk. The agreement was constructed with performance fees tied to the accomplishment of a specific set of business outcomes.
"We have come an extremely long way in the last two years," says Wijthoff. Paul French, Founder and Co-Chairman of Equitant, echoes him: "We now have an overview of everything that is going on, and can now go directly to the source and fix problems immediately. We know exactly where we are in terms of dispute management by legal entity, individual customer, etc."
About the Authors
Christine A. Gattenio
Senior Vice President
Sales & Marketing
Christine directs Equitant’s business development and marketing efforts in North America and Europe. Prior to joining Equitant, Chris spent over 25 years in various business development and executive finance and operations management positions for companies such as The Hackett Group, National Education Corporation, and Pricewaterhouse Coopers, in roles where she led the design and development of major process improvement change programs across finance, human resources, information technology, procurement and SG&A functions.
Equitant is driving business transformation outsourcing as the premier provider of Order-to-Cash (O2C™) outsourcing, enabling Global 1000 corporations to measurably improve and manage their O2C™ cycle from start to finish.
CFO – EMEA Asset Management
Lucent Technologies Europe
Jack has held numerous financial and operational positions at Lucent and in the telecommunications industry overall. Currently CFO, EMEA Asset Management and responsible for managing Lucent’s entire EMEA Accounts Receivable process, he has also held CFO positions as Business Unit Support Manager CG NL and Nordics, and Management Accountant Service and Repair Center (SRC). Prior to Lucent, Mr. Wijthoff held CFO positions for Accounts Payable and Inventory Administration for AT&T Network Systems in Europe. Jack is currently based in The Hague, The Netherlands.