Finance and Accounting Outsourcing - How to Avoid Pitfalls and Gain Value Presented by Karen Ikeda, ACS & Joe Hogan, Alsbridge May 11, 2011, 11am EDT Sponsored by ACS, A Xerox Company Presented & Produced by the Outsourcing Institute Today’s Speakers Joe Hogan Managing Director Alsbridge Page 2 May 14, 2011 Karen Ikeda VP, Business Development F&A Services ACS, A Xerox Company Discussion Topics • Introductions • FAO Trends • CFO Challenges • Key Challenges Along the Sourcing Lifecycle • – Strategy / Planning – Designing / Contracting – Execute / Transition – Operate / Renew Questions & Answers Page 3 May 14, 2011 FAO Trends •For the last three years; there have been over 100 contracts awarded each year with the major FAO providers – 2010 there were over 135 new awards •Approximately 85% of signed contracts are with companies with revenues of $1 billion or higher – Over 60% of the contracts are with companies with revenue of $5 billion or higher •The majority of the contracts have a total contract value (TCV) of less than $25 million – Historically, at least 30% of the contracts are over $25 million TCV – For 2010, that threshold dropped down to less than 25% • Approximately 45% of the 2010 contracts were three year contracts – May have had two, one year renewals (mimics 5 year contract) Page 4 May 14, 2011 CFO Challenges Key benefits sought by most CFOs remains consistent. Page 5 Cost & Value • • • • • Reducing direct operating costs Self funding future investment Converting semi-fixed costs to variable Improving business results Freeing up resources for higher valued, partnering activities Capacity • • • • Flexible business models to address business changes Capacity to address growth & geographic expansion (build vs. buy) M&A support and integration Access to on-demand resource pool Capability • • • • Leveraging global workforce & talent Access to broad, diverse talent and skills Implementing best practices Access to innovative technology Control & Risk • • • • Successful transition of work activities Maintaining and improving process controls Maintaining “ever green” process documentation Managing global, virtual teams May 14, 2011 Key Challenges Along the Sourcing Lifecycle Sourcing Lifecycle Strategy / Plan Design / Contract Execute / Transition Operate / Renew Leadership / Change Management • Scope definition • Client technology • Evaluation process • Capturing key volumetrics • Negotiating innovation out • Pricing • Team hand offs • Cultural alignment gaps • Client critical path items • Understanding governance requirements • Turnover Strategy / Planning Challenges • Scope – Process vs. functional – End to end scope vs. piece part – Pilot / proof of concept vs. full program roll out – Impact on employee retention / career pathing • Client technology requirements – Leverage current investment; prevent asset write off – How much more investment will client make • Capturing key volumetrics – Gaps in volumetrics – have biggest direct impact on pricing approaches Page 7 May 14, 2011 Evaluation Process • Does the evaluation process test for cultural alignment fit and enable collaboration – There are many qualified FAO service providers – Capability & experience records are very close on many attributes • Have the selected providers achieved key threshold levels • Need to be careful that the quantitative analysis is balanced with the qualitative evaluation • Leverage the evaluation process to test for compatibility, transparency and collaborative style and alignment • Actions speak louder than words – Innovation versus cost/price Page 8 May 14, 2011 FAO Transformation and Innovation Clients and service providers need to spend time articulating and defining the transformation agenda for the relationship. Process and/or Functional Transformation • • • • Implementing shared services / outsourcing delivery model Additional cost reductions beyond contract price “Customer experience” improvement Reduce costs outside of provider’s scope (TCO) Page 9 Technology & Other Project-oriented Benefits Business Outcome Benefits • • • • • • Days sales outstanding Profit leakage Revenue per customer Asset recovery Inventory turns Program spend May 14, 2011 • • • Implementing new ERP / significant ERP upgrade Completing project early Contingent fee based projects Idea Sharing, Networking and Alliances • • • Thought leadership, whitepapers, best practices Networking forums Introduction to enabling alliances Pricing Methodologies / Gainsharing Effort Based Output /Transactional Outcome Based Examples: •FTE / rate card pricing Examples: •Price per invoice •Price per customer Examples: •% of cash collected •% of spend Benefits: •Ease of application •Low administration Benefits: •Aligns w/business •Scalable •Predictable Benefits: •Aligns with business changes & performance •Greater risk / reward Challenges: •Requires good volumetrics •Greater administration •Need to ensure incentive to eliminate transactions •Can be challenging if significant change is planed Challenges •Requires more end to end sourcing •Requires good volumetrics •Greater risk / reward Challenges: •May be creating a staff augmentation vs. outsourcing contract •Costs still semi-fixed •Greater governance requirements •Difficulties dealing with volume changes Page 10 May 14, 2011 Sourcing Lifecycle The greatest time, money, and complexity occurs post-contract; but often receives the least amount of formal support. Sourcing Lifecycle Strategy / Plan Design / Contract Execute / Transition Operate / Renew Value leakage mitigation 1 – 2% Spend Page 11 97 – 98% Spend Strategy & planning Transition & commencement Evaluation & contracting Ongoing delivery May 14, 2011 Contract expiration / renewal Service Management & Governance Pillars Leadership needs to think about the resources & skills required to successfully manage a sourcing contract. Page 12 Relationship Management •Strategic direction & governance •Growth & innovation •Customer satisfaction survey management •Communications management •Internal stakeholder management •Forecasting and demand management Performance Management •Performance analysis & service delivery management •Incident, problem, escalation, change management •Service requests & authorization •Risk management Contract Administration •Contract administration •Contract change management •Contract issue management •Dispute resolution •Service provider audit •Governance library Financial Management •Invoice management •Performance credits, earnbacks, and critical milestones •Contract pricing adjustments •Chargeback •Value leakage mitigation •Demand forecasting •Financial analysis & planning May 14, 2011 Transition Challenges • Team hand offs (both sides) – Greater emphasis on kick off meetings (may need multiple meetings) – Take the time to ground both teams – Training to client team • Cultural alignment gaps – Company to company – Team to team – Culture to culture – Demographics to demographics • Client critical path items (technology) Page 13 May 14, 2011 Governance Challenges Typically only about 20% of the common challenges are contract related (e.g., T&C’s / pricing). •Understanding governance requirements – Acquiring the right skill set • Co-dependency issues •Turnover – Account turnover – Company turnover Page 14 May 14, 2011 Client Intimacy Not Met Providers expectations are met or exceeded Exceeded Successful contracts / relationships achieve the right balance of client intimacy. A Taking Relationship Client Intimacy • Possible misperceived client satisfaction • Risk of failure to renew – price / contract • Erosion of trust • May be perceived as “not listening” • Probable high profit • Not referenceable • High client satisfaction • High level of trust • Appropriate executive interaction • Honest / frequent communication • Cooperative contract interpretation • Referenceable • Fair profit Client Conflict A Giving Relationship • • • • • Possible misperceived sense of client loyalty • Risk of failure to renew – inflated expectations • Referenceable • Possibly engaged in undesirable work • Communication – inability to say “no” • Artificially lowered profit Contractual disagreement Low client satisfaction Not referenceable Inordinate executive investment • Little or poor communication • Low level of trust • Potential / probable loss Not Met Page 15 May 14, 2011 Client expectations are met or exceeded Exceeded ACS is Now a Xerox Company Page 16 Powerful Brand and Trusted Partner Established and respected leader Serve 50 states and many Fortune 1,000 Global Delivery 78 global service delivery centers 500 locations/130,000 people Service and Operational Excellence Recognized Leader — IDC, Gartner 4th consecutive J.D. Power Certification World-class Portfolio Comprehensive offerings and expertise Unique market position and leadership Technology and Innovation 9,400+ active U.S. patents 4% of revenue dedicated to RD&E Enable process breakthroughs May 14, 2011 ACS - Complete Portfolio of End-To-End FAO Solutions Key Metrics Full Scope FAO Services Corp. Services / Decision Support Record to Report Order to Cash Source to Pay • Treasury – Cash & Debt Planning & Management • SOX Compliance • Strategic Planning – Competitor & Market Analysis • Decision Support – Business Performance – Forecasting – Business Case Support • Product Costing & Pricing • M&A / Divestiture Support • General Accounting – Consolidation & G/L Close – Intercompany / Allocations – Journal Entries – Reconciliations • Fixed Assets • Cost Accounting • Tax Compliance / Filings • System / Table Maintenance • Reporting – Regulatory / Statutory – Management Reporting • Credit Analysis & Processing • Order Management • Billing Services • AR/Cash Application • Deduction Management • Collections & Dispute Resolution • Bad Debt, Reserves & Write-Offs • Analytics – Reporting – Payment Trending • Sourcing – Spend Analysis – Contract Negotiations – Commodity & Program Management • Procure to Pay – Vendor Maintenance – Purchase Reqs / P.O. – Mailroom Ops / Imaging – Invoice Processing – Exceptions & Inquiries – Payment – T&E Compliance & Processing • Payroll Services* • 1K forecasts developed • 6K business analysis performed • 22K Component parts – standard cost development • Over 100 FTEs • • • • • • • • • $11.6B in “Spend” under management • 600+ procurement professionals • 40M Invoices • $421B in Payables • $1.3M T&E • Over 3,500 FTEs Page 17 19K GL closes 68K Journal entries 182K GL reconciliations $900M Inventory managed in 34 locations • 500K Fixed assets • Over 1,000 FTEs May 14, 2011 860K Customer accounts $235B Receivables ~53M Collection contacts Over 18,500 FTEs Questions & Answers If you have any questions or further interest to learn more about finance & accounting outsourcing please contact: •Karen Ikeda, ACS, A Xerox Company Vice President Business Development Finance & Accounting Services (206) 276-3706 karen.ikeda@acs-inc.com •Joe Hogan, Alsbridge Managing Director 214-696-6410 joe.hogan@alsbridge.com Page 18 May 14, 2011 The Outsourcing Institute • Gateway to the Outsourcing Marketplace • Located at outsourcing.com • Trends, Best Practices, Case Studies • Training Through OI University • Outsourcing RFP Builder Software and Related Tools • Outsourcing Jobs and Recruiting Services Through CMS Inc. • Local, Intimate and Interactive Outsourcing Road Shows Coming to a City Near You • Sponsorship and Business Development Opportunities For more information contact us at: info@outsourcing.com or 516-279-6850 ext. 712 Outsourcing Institute Local 'Road Show' Events Los Angeles / Southern California & New York "Executive Insights: Enhancing Results Through Innovation in Outsourcing" The road show events will link buyers, providers and advisors of outsourcing services in collaborative, learning environments. Attendees will discover how innovation creates incentives that encourage providers to deliver value beyond price. They'll hear case studies from seasoned players navigating a maturing industry. They'll see how a geographically diversified portfolio of offshore, near-shore and domestic providers can help manage risk and aid in continuity planning. Roadshow Locations: Los Angeles/Southern California – May 20, 2011 New York – June 9, 2011 To Register: www.outsourcing.com/roadshow To learn more about the road shows, visit outsourcing.com/roadshow For more information contact us at: info@outsourcing.com or 516-279-6850 ext. 712 Thank you for joining Finance and Accounting Outsourcing – How to Avoid Pitfalls and Gain Value Joe Hogan Managing Director Alsbridge Karen Ikeda VP, Business Development F&A Services ACS, A Xerox Company This webinar was sponsored by ACS, a Xerox Company in conjunction with The Outsourcing Institute. Page 21 May 14, 2011