Why Outsourcing is In: The C-suite Appeal

BOB NESLUND, FORTUNE 100 CONSULTANT

C-Level executives are increasingly aware that the 21st century business environment - with much shorter business cycles and the time between innovation and reaction shrinking - is only affording them enough time to focus on what they do best.

"HOW DOES A CEO BUILD SUSTIANBLE ADVANTAGE?"
- BOB NESLUND

"How does a CEO build a sustainable advantage?" asks Bob Neslund, a former COO and now consultant to Fortune 100 companies. "How do we focus our core competencies? By allowing others, including expert service providers, to provide basic support in areas such as finance and accounting."

Neslund should know. He was the COO behind one of the most impressive turnaround stories of the last decade. Neslund, with more than 40 years of retail experience, along with a small group of senior executives, took the reins of ailing Asian retailer, Dairy Farm International Holdings, and turned it into a top performer.

In 1997, when Bob moved to Hong Kong, Dairy Farm's stock price was in the midst of a slow slide that bottomed in 2001 at USD 0.35 per share. Come 1998, Bob led a wide-spread organization restructuring which included an innovative initiative to outsource back-office finance, human resources, and procurement operations and transform the CFO and Finance Directors from chief bookkeepers to financial leaders. Today Dairy Farm trades at more than ten times its low point and frequently tops the list of "value creators" in retail.

Outsourcing: Introducing Instant Savings

Today Neslund is an advocate of outsourcing as a technique for driving organizational change. So much so that he recently joined the advisory board for the China-based service provider Next Horizon.

Typically companies who embark on back-office reengineering and outsourcing initiatives - be it HR, IT, Procurement - must wait years before they realize savings. Not so with Next Horizon, a provider who takes over and improves back office operations - and guarentees instant savings.

"Outsourcing can be used as a strategic advantage," says Neslund, "a breakthrough, allowing a company to move in different directions, defend against a new competitor, expand in a new market."

Outsourcing the back-office also represents a significant way of bringing in expertise as well as sharing risk, further appealing to CFOs' conservative character, according to Neslund.

Tighter Focus on Core Competencies

"...WE WERE ABLE TO DELIVER MORE THAN 70 PERCENT
SAVINGS AFTER OUTSOURCING HELPED ENABLE THE
BIGGER CHANGES AT DAIRY FARM." - TOM REILLY

Back in 1999, Dairy Farm had operations in nine countries and sales in excess of US$5 billion, and it was clear a restructuring was in order.

"Finance and accounting was something we were spending a disproportionate time on," says Neslund. "Outsourcing our finance department was a slam dunk. We needed to develop a clear focus in the areas which would make us great and outsource the rest."

Neslund turned to consultancy Ernst & Young to take-over nearly 400 staff in Hong Kong and Australia and run the accounting organization. This is where Neslund met Tom Reilly.

"We were trying to pull off the 'hat-trick'," says Reilly, now CEO of Next Horizon. "Our aim was improving performance and reducing costs within finance, while re-tooling the finance directors and giving them the freedom and support they needed to turn-around the business.

"There were a lot of skeptics," continues Reilly. "The finance department had just been through a system upgrade and a major reengineering project. Some people thought that finance was already 'lean and mean', and that the work was done. We were able to deliver more than 70 percent savings after the spin-off and helped enable the bigger changes at Dairy Farm."

Driving Organizational Change

"CFOS BECOME MORE INTIMATELY INVOLVED WITH THE
BUSINESS AND STRATEGIC DECISION-MAKING."
- BOB NESLUND

Neslund is an advocate of outsourcing for driving organizational change. It grants finance and accounting staff the opportunity to spend more time on economic strategy and forecasting instead of getting bogged down in the backward-looking components of their role, in which they've increasingly become relegated to company financial historians churning out results.

By moving the transactional side of their duties outside, "CFOs become more intimately involved with the business and strategic decision-making," says Neslund. "They can keep their strategic planning group and remain operationally engaged in the business. From the marketing side to the management side, they're part of the team."

Leveraging An Outsourcing Provider to Engender a New Corporate Culture

While consultants may categorize this type of outsourcing as a form of business process reengineering, "from the C-level perspective, this is as much about cultural change," says Neslund. Often in underperforming finance departments, in a case of either cause or effect, staff often lack motivation and initiative as part of a womb-to-tomb culture that is all about the status quo.

Neslund credits Reilly's collaboration and deft guidance in creating a performance-driven culture with staff excited to be part of a new operation that affords both opportunity for higher learning and career advancement.

"The CEO looks for experienced practitioners who can operate with soft hands," says Neslund. "Tom Reilly is truly a talent in dealing with people. He cares about people and that was pervasive with the Dairy Farm deal. For eight years he was an effective cheerleader, providing encouragement and support. People appreciated that."

Adds Reilly: "The change in focus is not just about those staying in the internal finance organization but also for those transferring to the new finance center. Those at the new finance centre need to become indoctrinated with a customer-service mentality, to learn how to treat their new client as a true customer."

Next Horizon's Executive Team: Directly Accountable and Accessible

Of course, equally important to a CFO is to not lose control of his or her department. In this type of outsourcing the CFO's team is still down the hallway; the hall just became a lot longer though no less accessible.

While for many, the decision to surrender the adding machines to any third party will be governed by gut instinct and is ultimately a leap of faith, experience counts.

"Experience accelerates value," says Neslund. "When looking for a group to manage finance & accounting, you're really looking for a hands-on practitioner with a successful track record and a roadmap that shows cost reductions and operational improvements. There's a high degree of comfort when doing business with a group with a proven track record, a feeling of trust."



For More Information:
E: tom.reilly@nexthorizon.com
T: +852-3105-3168