An executive shared with me a frustrating story. She discussed how her firm was looking at outsourcing much of its finance, accounting and HR operations to reduce SG&A costs. While she’s supportive of the concept, she was having significant difficulties with the strategy consultants hired by her firm.
These consultants have determined ideal headcount levels for the remaining onshore personnel complement using third-party benchmark data. Unfortunately, these consultants didn’t collect the data within these benchmarks and can’t discuss the basis behind these numbers. Worse, the junior staff using these benchmarks have never worked in functions like accounts payable or general accounting. Without the context behind the benchmarks or real functional experience among the consultants, it’s hard to understand if this executive’s firm is doing a similar or different mix of work than the benchmarked firms and why.
Context is key when using benchmarks. It helps users of the data understand things such as:
- What process designs generate first quartile performance results? Can this firm use those process designs? Are those process designs relevant to our industry, country, size of business, etc.?
- What environmental factors (e.g., regulatory or industry reporting requirements) were factored into the calculation of the benchmarks?
- Can other firms expect similar results? If so, how? What exactly must occur for these results to occur at other firms?
In my consulting career, I ended up sweeping behind one of these prestigious strategy consulting firms many times. They were great at identifying merger opportunities and calculating potential post-merger synergy savings. What they couldn’t do was identify a reasonable timeframe for merging technologies or eliminating redundant costs. They couldn’t do these things well because they lack expertise in changing big organizations, systems and processes. If you couldn’t build Rome overnight, why should anyone expect two gigantic firms to understand, rationalize and integrate everything in just 30 days? Why should anyone expect huge BPO transitions to occur in the same timeframe?
Worse, when these strategy firms tell board members and top executives the synergy numbers and (erroneous) time-frames for benefit realization, these executives make the mistake of sharing these overly optimistic numbers with Wall Street, investors and the media. Now, expectations are set and disappointments are sure to follow.
Hiring a strategy firm to do an outsourcing (or post-merger integration, big ERP implementation, etc.) project is wrong on many levels. The change management skills, process re-engineering skills and pragmatic work experience needed to correctly execute these projects is daunting and not within the purview of many of them. I’ve seen this many times before in my career and it appears that executives are still hiring the wrong kind of firm to do this sort of work.
What I discussed with this executive was that the consultants have to:
- Understand the root cause of why the current processes aren’t up to world-class levels. This executive immediately identified her firm’s sales organization with its constantly changing sales promotions as being a huge work generator and cause of exception handling for her back office organization. Did the consultants know or recognize this? No. Would the consultants recommend to management that sales processes be standardized in the future? No. Did the consultants even grasp the connection between non-standard sales activities and increased general accounting work? No.
- Make trades sometimes. When one group can go to world-class levels of performance, other groups may need more labor to complete tasks not finished or caused by other factors.
- Understand the context behind the benchmarks.
- Use animation tools to understand the potential impact of new process designs or staffing levels on customer service. If you reduce the headcount to do a function like AP, but you don’t change the systems or the inputs that workers deal with, you’ve created a huge bottleneck that will likely fail. Pilots or animation tools help focus management on potential problems before the consultants get paid and leave.
- Realize that just because one firm achieved a certain level of performance doesn’t mean that this is possible, appropriate or even viable for other firms.
- Keep the big picture in mind. The overall goal, to reduce operating costs, is the big payoff. If a little more labor is required to eliminate errors, reduce compliance costs, ensure books get closed in a timely and accurate fashion, then so be it. If the project becomes singularly focused on just the labor cost issue alone, this effort is doomed. Are service levels improving? Are other costs declining? What other groups or corporate flexibility will be sacrificed to hit these artificial targets? Smart consultants know this. Amateurs don’t.
Useful Links
Optimize article that explores the right way to develop a major reengineering/shared services initiative
http://www.optimizemag.com/issue/003/roi.htm
