VideoMoving to an outsourced structure came relatively easy for NOL. As early as five years ago, the company had already set up a shared service center in Manila, which it later transferred to Shanghai as China accounted for a greater share of its trans-Pacific and Asia-Europe sales. The center was then handling payables, cost accounting, and documentation, which involved processing bills of lading. Its receivables function, however, was scattered throughout its regional hubs, including Memphis for the US, Rotterdam for Europe, and Shanghai for Asia. Apart from Shanghai, NOL felt the pinch of high wages in the other two locations when it started to post losses.
"As long as you have a lot of activities in a high-cost area, you come to a point that those remaining incomes get expensive on a per-head basis," says Lim. NOL knew that transferring finance positions to Shanghai was an obvious next step, but the unions overseas were a stumbling block. "If you outsource, the union constraint is more easily tackled than if you were to migrate from country A to country B," says Lim. That, along with projected cost savings and other benefits, convinced NOL to shut down its shared service center and move its functions to Accenture, a US-based outsourcing and consulting firm which, at that time, was seeking to establish a presence in China.
The move immediately cut down the number of people on NOL's payroll by at least 200, and more are expected by the end of the year, when the last 20 percent of the countries the company operates in joins the outsourcing structure. Following its spin-off from HP, Agilent decided less than three years ago to set up an outsourcing facility in India. Called Agilent Technologies International (ATI), it was originally meant to support headquarters' engineering services, R&D and IT systems. "We did think that finance could be one of [the functions ATI could support], knowing that India has a lot of accounting folks," says Leung. Within a year, the company, which at that time had more than 40,000 employees, began to move certain functions to India, starting with those that are internal to the company such as expense reimbursements.
Next, Agilent eased in what it calls its key business flows: procurement to payment, quote to collection, and accounting to reporting. The first, says Leung, covers the procurement process, from doing a tender, to getting a quote, to placing an order, to paying suppliers. The second covers processing invoices, collections, and matching the remittances with the original invoices. The third involves "all accounting entries — to a point where we could close all the books [until we're ready to] report the financial statements both internally and externally," says Leung, who is based in Hong Kong.
This meant moving most of the jobs to India from Colorado (until then the hub of Agilent's transactions processes) and from smaller regional hubs such as Tokyo, Barcelona, and Singapore. ATI then became the company's new global hub for finance. "We hired a team in India and gave them classroom-type and some hands-on training on our systems," says Leung. Agilent also sent the new staff to Colorado for further training with staff there. Of course, the US and other workers eventually lost their jobs, but they got "a very competitive severance package," says Leung.
Prior to outsourcing, Agilent had 1,800 employees directly related to the finance function. This, says Leung, was 210 percent more than the average world-class company as surveyed by Hackett. Leung declined to disclose how many finance employees were made redundant — overall, Agilent lost a third of its workforce to some 29,000 now — but ATI currently employs around 900 people, including both R&D and shared services. The regional offices, meanwhile, still hold about 50 people each.
A Stitch in Time
Leung calls the finance offices in the various regions "centers of expertise" that do higher-level finance work. Singapore, for example, is in charge of treasury and cash management. "As we went to a global hub structure, we still kept these places, doing work that is best done in a country outside of the hub for coordination; for proximity to a business or customer," he says. This approach is similar to NOL's, which also does cash management at the headquarters in Singapore, and keeps what Lim calls "centers of excellence" overseas.
The difference is that NOL's centers can have a headcount of as few as one person, mainly to deal with problems that may be too complicated for the Accenture staff handling their account. "Usually, complications start when customers create customized payment structures," says Lim. For example, the final destination of a container shipment may be Malaysia, but the payment-processing center of the receiver may be in Singapore, with no advance instruction given. "If the customer also has a processing base in Singapore, Accenture may not understand exactly what's happening," says Lim, "so the end receiver [of the invoice] may not be the one [in charge of] paying."
In a bid to prevent similar problems, NOL worked with Accenture to make sure that clients have no problems with invoices before payment is due. Some clients overshoot the 30-day payment deadline. "You go to a client and the client says, 'I don't agree with your US$5,000 (invoice), I think it should be US$4,500 because I actually got a rebate,'" says Lim. By the time the issue is cleared up — which may or may not result in a full payment — another 35 days have lapsed, leading to a deterioration of NOL's days sales outstanding (DSO)." The solution: If there are disputes, Accenture gets in touch with the client around 15 days after the invoice is sent. "You want any problem to be highlighted before the credit is due, which could be a big improvement since it will bring down your DSO," says Lim.
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