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IT outsourcing paves the way for one CFO to send his finance and accounting function to India.
Theresa Sullivan Barger, CFO.com | US
January 26, 2007
Parts may be parts in the chicken business, but it's still not common practice for U.S. restaurant chains to send large chunks of their finance and accounting (F&A) operation to India. Nevertheless, at the beginning of the year, international fast-food restaurant Church's Chicken outsourced all but three F&A positions to India in a move that saved the privately held company nearly $1 million.
As is the case with most outsourcing deals, the decision came down to a cost savings that couldn't be ignored, says company CFO Dusty Profumo, who is based at Church's Atlanta headquarters. The gain was worth the trade-off of adjusting to a staff that sits in a different time zone and hails from a different culture, says Profumo. Indeed, the outsourcing deal cut F&A costs at the company-owned stores by 50 percent. (About 270 of the company's 1,500 retail outlets are owned and operated by Church's; the rest are franchise operations.)
Church's move offshore was not unexpected. The chain, which generates more than $1 billion in worldwide sales annually, had already sent its information technology department to an outsourcer in India. What's more, five years ago, Church's outsourced its F&A function to a vendor that is now based in Tulsa, Oklahoma.
In the latest outsourcing iteration, Profumo, a controller, and an assistant controller work out of the U.S. office, while the rest of the F&A staff — employees of WNS Global Services — reconcile debits and credits from India.
The decision to send the F&A function overseas is part of a growing globalization trend, contends Michel Janssen, chief research officer at The Hackett Group, a business-consulting firm. "You can't put the [global] genie back in the bottle," he says. By Janssen's lights, the only companies that won't wind up outsourcing their F&A operations to low-cost countries such as India are those that don't compete globally, or those that have very small operations.
In 2006, the F&A outsourcing market in the United States reached $2 billion, and it is expected to rise by 30 percent in 2007, according to research published by consultancy The Everest Group. The study also points out that some type of offshoring — that is, sending the outsourced job overseas — is included in 80 percent of F&A outsourcing deals. India is the top destination, but Eastern Europe is quickly becoming a key alternative, especially for European companies.
While both Profumo and Janssen admit that no outsourcing arrangement is as easy to manage as a department down the hall, once a company decides to outsource, there's not much difference between Oklahoma and India. In fact, Profumo expects positive results from his India-based staff, given the level of education of most of the workers. The supervisory employees assigned to Church's are either chartered accountants or CPAs, a higher level of education than that of their peers at the Tulsa-based outsourcing firm.
The Indian staff also seems very motivated to advance within the company, observes Profumo. But that's a double-edged sword: a major challenge for WNS, and by extension Church's, "is holding on to...good people," says Profumo. "The [F&A outsourcing] industry is exploding." WNS executives claim that their company has low attrition rates, which they attribute to the focus they put on "high-potential talent." Company officials say such workers are given a chance to learn new skills, receive regular and professional feedback, and have the opportunity to climb the corporate ladder into management.
F&A operational challenges seem less difficult than personnel issues, at least for Profumo. For instance, the finance chief is keeping tabs on control and oversight of the F&A function the same way he did with the Tulsa staff. In fact, Church's stepped up oversight of the F&A function as soon as the chain made the decision to outsource in 2001. "I think it's common sense that communication [with] and active management of the outsourcer are critical."
Outsourcing may also push Church's to reconcile U.S. and international accounting standards at a faster pace than its peers. Although WNS and Church's currently use U.S. generally accepted accounting standards, Profumo reckons that as more companies take the global stage, accounting convergence will be the rule, rather than the exception.
Regarding the 30,000 foot view, Profumo doesn't think that keeping watch over the day-to-day F&A outsourcing deal will hinder his ability to manage the big financial picture. While the company looks to add 1,000 more retail stores by 2010, he is working on a plan to create a low-cost back-office outsourcing package to help franchisees gain a competitive edge in the fast-food nation.