Police funding has risen by £4.8 billion and 77 per cent (39 per cent in real terms) since 1997. However the days where forces have enjoyed such levels of funding are over.
Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable, and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high quality policing to the public.
The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships and people.
The finance function has an essential role to play in addressing these challenges and supporting Forces’ objectives economically and efficiently.
Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is in part the result of over a decade of devolving functions from the center to the.divisions.
In order to reduce costs, improve efficiency and mitigate against the threat of “top down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.
Developing a Best in Class Finance Function
Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. With a renewed focus on efficiencies, there is now a pressing need for finance departments to transform in order to add greater value to the force but with minimal costs.
1) Aligning to Force Strategy
As Police Forces need finance to function, it is imperative that finance and operations are closely aligned. This collaboration can be very powerful and help deliver significant improvements to a Force, but in order to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.
Finance requires a clear vision that centers around its role as a balanced business partner. However to achieve this vision a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and to devise a way forward that can work for that particular organization.
The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers as was the case a few years ago) many have progressed within the Public Sector with limited opportunities for learning from and interaction with best in class methodologies. In addition cultural issues around self-preservation can present barriers to change.
Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change and even where they are of exceptional quality senior police officers often lack the commercial awareness to trust them.
2) Supporting Force Decisions
Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.
Maintaining Financial Controls and Managing Risk
Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II and Individual Capital Assessments (ICA) have all put financial controls and reporting under the spotlight in the private sector. This in turn is increasing the spotlight on financial controls in the public sector.
A ‘Best in Class’ Police Force finance function will not just have the minimum controls to meet the regulatory requirements but will evaluate how the legislation and regulations that the finance function are required to comply with, can be leveraged to provide value to the organization. Providing strategic information that will enable the force to meet its objectives is a key task for a leading finance function.
3) Value to the Force
The drive for development over the last decade or so, has moved decision making to the Divisions and has led to an increase in costs in the finance function. Through utilizing a number of initiatives in a program of transformation, a Force can leverage up to 40% of savings on the cost of finance together with improving the responsiveness of finance teams and the quality of financial information. These initiatives include:
By centralizing the finance function, a Police Force can create centers of excellence where industry best practice can be developed and shared. This will not only re-empower the department, creating greater independence and objectivity in assessing projects and performance, but also lead to more consistent management information and a higher degree of control. A Police Force can also develop a business partner group to act as strategic liaisons to departments and divisions. The business partners would, for example, advise on how the departmental and divisional commanders can meet the budget in future months instead of merely advising that the budget has been missed for the previous month.
With the mundane number crunching being performed in a shared service center, finance professionals will find they now have time to act as business partners to divisions and departments and focus on the strategic issues.
The cultural impact on the departments and divisional commanders should not be underestimated. Commanders will be concerned that:
o Their budgets will be centralized
o Workloads would increase
o There will be limited access to finance individuals
o There will not be on site support
However, if the centralized shared service center is designed appropriately none of the above should apply. In fact from centralization under a best practice model, leaders should accrue the following benefits:
o Strategic advice provided by business partners
o Increased flexibility
o Improved management information
o Faster transactions
o Reduced number of unresolved queries
o Greater clarity on service and cost of provision
o Forum for finance to be strategically aligned to the needs of the Force
A Force that moves from a de-centralized to a centralized system should try and ensure that the finance function does not lose touch with the Chief Constable and Divisional Commanders. Forces need to have a robust business case for finance transformation combined with a governance structure that spans operational, tactical and strategic requirements. There is a risk that potential benefits of implementing such a change may not be realized if the program is not carefully managed. Investment is needed to create a successful centralized finance function. Typically the future potential benefits of greater visibility and control, consistent processes, standardized management information, economies of scale, long-term cost savings and an empowered group of proud finance professionals, should outweigh those initial costs.
To reduce the commercial, operational and capability risks, the finance functions can be completely outsourced or partially outsourced to third parties. This will provide guaranteed cost benefits and may provide the opportunity to leverage relationships with vendors that provide best practice processes.
Typically for Police Forces the focus on development has developed a silo based culture with disparate processes. As a result significant opportunities exist for standardization and simplification of processes which provide scalability, reduce manual effort and deliver business benefit. From simply rationalizing processes, a force can typically accrue a 40% reduction in the number of processes. An example of this is the use of electronic bank statements instead of using the manual bank statement for bank reconciliation and accounts receivable processes. This would save considerable effort that is involved in analyzing the data, moving the data onto different spreadsheet and inputting the data into the financial systems.
Organizations that possess a silo operating model tend to have significant inefficiencies and duplication in their processes, for example in HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning to the corporate objectives of an organization. Police Forces have a number of independent teams that are reliant on one another for data with finance in departments, divisions and headquarters sending and receiving information from each other as well as from the rest of the Force. The silo model leads to ineffective data being received by the teams that then have to carry out additional work to obtain the information required.
Whilst the argument for development has been well made in the context of moving decision making closer to operational service delivery, the added cost in terms of resources, duplication and misaligned processes has rarely featured in the debate. In the current financial climate these costs need to be recognized.
Within transactional processes, a leading finance function will set up targets for staff members on a daily basis. This target setting is an element of the metric based culture that leading finance functions develop. If the appropriate metrics of productivity and quality are applied and when these targets are challenging but not impossible, this is proven to result in improvements to productivity and quality.
A ‘Best in Class’ finance function in Police Forces will have a service focused culture, with the primary objectives of providing a high level of satisfaction for its customers (departments, divisions, employees & suppliers). A ‘Best in Class’ finance function will measure customer satisfaction on a timely basis through a metric based approach. This will be combined with a team wide focus on process improvement, with process owners, that will not necessarily be the team leads, owning force-wide improvement to each of the finance processes.
Organizational structures within Police Forces are typically made up of supervisors leading teams of one to four team members. Through centralizing and consolidating the finance function, an opportunity exists to increase the span of control to best practice levels of 6 to 8 team members to one team lead / supervisor. By adjusting the organizational structure and increasing the span of control, Police Forces can accrue significant cashable benefit from a reduction in the number of team leads and team leads can accrue better management experience from managing larger teams.
Technology Enabled Improvements
There are a significant number of technology improvements that a Police Force could implement to help develop a ‘Best in Class’ finance function.
A) Scanning and workflow
Through adopting a scanning and workflow solution to replace manual processes, improved visibility, transparency and efficiencies can be reaped.
B) Call logging, tracking and workflow tool
Police Forces generally have a number of individuals responding to internal and supplier queries. These queries are neither logged nor tracked. The consequence of this is dual:
o Queries consume considerable effort within a particular finance team. There is a high risk of duplicated effort from the lack of logging of queries. For example, a query could be responded to for 30 minutes by person A in the finance team. Due to this query not being logged, if the individual that raised the query called up again and spoke to a different person then just for one additional question, this could take up to 20 minutes to ensure that the background was appropriately explained.
o Queries can have numerous interfaces with the business. An unresolved query can be responded against by up to four separate teams with considerable delay in providing a clear answer for the supplier.
The implementation of a call logging, tracking and workflow tool to document, measure and close internal and supplier queries combined with the set up of a central queries team, would significantly reduce the effort involved in responding to queries within the finance departments and divisions, as well as within the actual divisions and departments, and procurement.
C) Database solution
Throughout finance departments there are a significant number of spreadsheets utilized prior to input into the financial system. There is a tendency to transfer information manually from one spreadsheet to another to meet the needs of different teams.
Replacing the spreadsheets with a database solution would rationalize the number of inputs and lead to effort savings for the front line Police Officers as well as Police Staff.
D) Customize reports
In obtaining management information from the financial systems, police staff run a series of reports, import these into excel, use lookups to match the data and implement pivots to illustrate the data as required. There is significant manual effort that is involved in carrying out this work. Through customizing reports the outputs from the financial system can be set up to provide the data in the formats required through the click of a button. This would have the benefit of reduced effort and improved motivation for team members that previously carried out these mundane tasks.
In designing, procuring and implementing new technology enabling tools, a Police Force will face a number of challenges including investment approval; IT capacity; capability; and procurement.
These challenges can be mitigated through partnering with a third party service company with whom the investment can be shared, the skills can be provided and the procurement cycle can be minimized.
We are in our series entitled Faith for Finances. Today, we are discussing, Faith for Finances: It’s Time for a Paradigm Shift. Glory to God.
A paradigm shift has to do with mindset. A paradigm shift is a radical change in underlying belief or theory. That’s the definition: a radical change in underlying belief or theory.
As we discussed previously, we do the things we do because of how our thinking has been shaped. Our thinking has been shaped by authority figures, their words and their opinions of us and also, by our social environment. Our social environment would be who we let speak into our lives from our peer groups or our co-workers or church members, etc. Our thinking comes from repetitious information received over time. Whatever you continually feed upon, that’s what grows. So, we have to watch what we let go into our “eyegates” and our “eargates.” For example, we can’t look at everything on TV and think it won’t have an effect on us. We also have to watch what we allow to come out of our mouths. We have to always measure against the Word of God as to what is true or false and then handle it accordingly. We drop it if it’s false, we keep it if it’s true. Finally, our thoughts are shaped by our life experiences. So, whatever life experiences that you have that correspond to the stuff that you’ve been hearing repetitively, you tend to go along with. For example, if you’ve been taught that all short people are mean and you meet a short person and they’re mean to you, you tend to believe what you’ve been taught. However, the question that we have to ask ourselves is, “Who told you?” Who told you what you think about yourself or what you think about a particular situation that you’re in? Then we ask, “What was their motive?” Why did they tell that to you? Would they benefit from it in some way? Finally, we ask, “Did they tell you the truth?” Some authority figures tell us great things. Some things that they told us were with a good motive and were the truth. However, some things we’ve been told were self-serving lies. We have to always test what we’ve been told, and consequently believe, against the Word of God.
Our core scriptures for this lesson are 3 John 2 and Joshua 1:8:
“Beloved, I wish above all things that thou mayest prosper and be in health, even as thy soul prospereth.” 3 John 2
“This book of the law shall not depart out of thy mouth; but thou shalt meditate therein day and night, that thou mayest observe to do according to all that is written therein: for then thou shalt make thy way prosperous, and then thou shalt have good success.” Joshua 1:8
So, we have to meditate on the Word of God and we have to make our own way prosperous. It’s not just going to happen. A lot of people are just super lazy. They think that blessings are just going to fall on them from out of the sky and that they don’t have to do anything to get them. However, the Bible says we make our own way prosperous. We follow God, we meditate on His Word and then He instructs us. He tells us things to do, we go about and we do those things, and the next thing you know, we’re prosperous. Also, because we’re doing it God’s way, we have good success. We don’t have all that hullaballoo that the world has… messing up their peace… can’t sleep at night. I remember Deion Sanders saying how he had the best bed money could buy, yet couldn’t get any rest. Before he knew Jesus, he would lie in that expensive bed, but get no rest. Without Jesus, you can have success, but it won’t be good success. It will have sorrow with it. Godly success is accompanied by peace. As we’ve seen on bumper stickers, “No Jesus = No Peace. Know Jesus = Know Peace.” When we follow after His principles, we have peace along with our progress. We have good success.
So, it’s time for a paradigm shift.
Romans 12:2 says,
“And be not conformed to this world: but be ye transformed by the renewing of your mind, that ye may prove what is that good, and acceptable, and perfect, will of God.”
We don’t listen to the world. We are not to be conformed to this world. The prefix “con” here means “with,” so you’re being formed with the world, in line with the world. We’re not to do that. We’re not to be conformed to this world, but transformed. The prefix “trans” means “across” so you’re going away from what they’re doing. You’re not lining up with them, you’re going across. You’re getting away from them. Be transformed by the renewing of your mind. You have to renew your mind. You’ve got some junk in there that does not belong, it doesn’t line up with the Word of God. “Pre-Christ” in your life, you got some stuff in there that you gotta get rid of. Specifically, with regards to faith for finances, the majority of the world is not financially secure. I think everyone would agree with that. A statistic that I’ve heard, and I’m not sure if this is correct, but a statistic that I heard is that 98% of the population is either dead or dead broke by the age of 65. I’m hoping that it’s not 98%, because that is a huge, huge number. There’s only 2% left. However, whether 98% is accurate or not, we do know that the majority of people fall into the category of being dead or dead broke by 65. We don’t want to be a part of that number, whatever it is. We don’t want to be conformed to the world’s way of doing things, because we don’t want to be dead or dead broke by the age of 65. We want to be in that 2% or in the minority that are doing things God’s way and walking in the blessing of God. So be transformed by the renewing of your mind that you may prove what is that good and acceptable and perfect will of God. What we need is a transformation in our decision-making process. We need to make decisions based on God’s Word and not on anything else. That’s what we need to fix: how we come to the decisions that we make, how we make choices. We need to obey God and we have to change the way we think on purpose. It’s not going to be an automatic thing. We have to re-learn some things. We have to purposely take out the junk and put in something that is good. It’s a purposeful action; it’s not something you do half-asleep. You have to be mindful of what you’re doing. I was listening to a sermon recently and the pastor was talking about this replacement principle. He spoke about how a lot of people just want to be good in life and they say, “God, make me good. Take away the bad stuff.” However, it’s not that simple. He explained that we can’t just expect God to take something out. We have to replace it with something else. He used an illustration where he had a container with some liquid in it and he began to put rocks into the container in order that the liquid would come out and roll over onto the sides of the container. As I watched this illustration, I realized that we have to put in something heavier than what is already inside our containers. In science, we learn about displacement, which is required for this replacement to occur. In this example, when the heavy rocks were placed into the container, the liquid was no longer in place. It was displaced by the rock. The liquid in this case would be the bad thing and the rock would be the good thing. So you get rid of the bad thing by displacing it, by putting something into your container that’s heavier than what’s already inside. I hear the Holy Spirit saying, “This Rock is Jesus!” Hallelujah! God’s Word, praise God, is heavier than any of the junk that the world has used to shape our thinking and it can displace it! That’s good news.
We can change. We just have to make sure that we’re willing to do it on purpose.
Isaiah 55:7-8 says,
“Let the wicked forsake his way, and the unrighteous man his thoughts: and let him return unto the Lord, and he will have mercy upon him; and to our God, for he will abundantly pardon. For my thoughts are not your thoughts, neither are your ways my ways, saith the Lord.”
We have to forsake our ways, just like the wicked must forsake his way. We have to forsake what our flesh thinks is right and what our so-called friends think is right. We have to forsake it. If it’s not lining up with the Word – that’s the measuring stick – if it doesn’t line up with God’s Word, we gotta junk it. We gotta get rid of it. So, we need to forsake that, forsake the unrighteous thoughts, and return to the Lord, who will have mercy and who will abundantly pardon. We, also, need to adopt God’s thinking process, His decision-making process. His thoughts are not our thoughts. We have to take on His thoughts. His ways are not our ways. We have to take on His ways.
2 Corinthians 10:3-5 says,
“For though we walk in the flesh, we do not war after the flesh: (For the weapons of our warfare are not carnal, but mighty through God to the pulling down of strong holds;) Casting down imaginations, and every high thing that exalteth itself against the knowledge of God, and bringing into captivity every thought to the obedience of Christ.”
A stronghold actually could be a good thing if you have the right stronghold in place. A stronghold is a mental thought pattern; it’s a way that you think about things. That’s a stronghold. It’s what’s deep down inside of you. It’s what you hold to. It’s your default. Those are strongholds. So, again, some are good, some are bad. The bad ones are the ones contrary to God’s will. So, we have to cast them down. We cast down imaginations and every high thing that exalts itself against the knowledge of God and bring into captivity every thought to the obedience of Christ.
Romans 7:22-25 also illustrates that we need to follow God’s order. In this passage it says:
“For I delight in the law of God after the inward man: But I see another law in my members, warring against the law of my mind, and bringing me into captivity to the law of sin which is in my members. O wretched man that I am! Who shall deliver me from the body of this death? I thank God through Jesus Christ our Lord. So then with the mind I myself serve the law of God; but with the flesh the law of sin.”
Then in Ephesians 4:23-24, it says,
“And be renewed in the spirit of your mind; and that ye put on the new man, which after God is created in righteousness and true holiness.”
So, you may be thinking, “What does all this have to do with faith for finances?” Everything. The mind is the battleground where the devil will send defeating thoughts to us. Our thinking controls our actions. If we meditate on what the devil has told us, we will then act on it and bring about failure. We must renew our minds with the Word of God. We must have a paradigm shift to the Word of God.
We’ll pick up here on next time and then move onto the how-to of this series.
God bless you and until next time, this has been Patricia, walking through the scriptures with you.
ndeed money is a huge topic in today’s time. Having been in the business of money and finances throughout my ‘worldly’ career’, I can sing a few tunes concerning this topic. Long before the 2000 crash I had realized that the systems and structures we created individually as well as globally were not viable and sustainable and would have to be replaced with new ones. I left Germany and the financial world and moved to New York, the global hub of finances, in order to assist in this process of economic and financial transformation.
Immediately behind personal transformation, money and finances is actually my favorite topic. Because the collapse of our present financial, socio-economic and environmental structures and systems is no longer just about markets correcting themselves or catching a few ‘thieves’. Instead, it is about human transformation and evolution! It presents us with the great opportunity to transform ourselves and our environment. And this, has very little to do with money or finances but a lot with our perceptions, beliefs and the way we view and treat each other and our environment. Who we are affects every aspect of our daily life from relationships and career to monetary and financial matters.
Therefore, I recommend a program called “Self-Transformation through Self-Realization” based on the teachings of a group of (American) Indian Spirit Guides which helps us to discover WHO we are in Truth, WHAT our inherent core (survival) fears are (based on our pre-birth arrangement) and what defense mechanisms we have developed in our early childhood to cope with these fears. The teachings are very self-transformative and powerful.
The time for change and transformation is now! We are all inhabiting this very same planet at the same time, however, we do live in different realities. Depending what reality one lives in, one conducts oneself, one’s career, relationships as well as financial and money matters either in the old or the new paradigm.
Diana Caughell is founder and president of NuLifeTraining4U, a company dedicated to empowering clients to live a healthy, happy and successful life. Additionally to her spiritual trainings and education, Diana draws upon her management, marketing, and financial expertise to help clients achieve permanent sustainable personal and professional success. Diana teaches proven, practical mental and spiritual power tools for dealing with every-day challenges in career, relationships or personal life in a more efficient and powerful way. She works with individuals and companies, gives workshops and speaks on topics of personal growth and development, human transformation and evolution.
I have been amazed by the strength of the business cases for the F&A outsourcing deals I’ve led over the last few years. A number of things have happened to make them look so good.
First, the suppliers have really got their acts into gear. They provide clear, all inclusive pricing that makes a comparison very clear.
The market is not fully comfortable with transaction based pricing, but that is as much the issue of the Buyers as the Supplier. At an FTE/employee basis, the comparison is a lot easier for everyone, given the level of data required to price at a transaction level.
Second, what has happened on the Buyer side of things is that Shared Service Centers have experienced wage creep over the years, sometimes adding 1-2 layers of operation. Most Shared Service Centers have countered this in part by improved productivity, but this has not matched the similar gains made by the outsourcers.
Combined, these facts make the business case strong for most F&A outsourcing projects.
Key Fact 1. The average, fully laden cost of an outsourced finance team member is $34,000/£22,000 per year. This is the fully loaded cost, of staff who are fully trained, including all overheads and leadership costs.
From any Shared Service Centre I’ve seen in the US, UK and Europe, those are pretty much entry level salaries, regardless of all the additional employment taxes, operating costs, and management costs attached to every position.
These numbers translate into a very strong business case, and it is the main reason why CFOs push for a deeper investigation.
2. Amounts At Risk
Is your Shared Services Operation willing to risk its own money to underwrite delivery levels? Away from financially-based business cases, this is the most under-valued differentiator between an internal delivery model and an outsourced delivery model.
I have not yet seen an internal delivery model that creates any alternative to this. Yes, I’ve seen bonuses unpaid due to performance issues, but nothing that repays the business for failings that have impacted their own performance.
The chasm between the Internal and External model is only going to widen further as the Outsource Suppliers choose to adopt targets for business-critical areas such as Days Sales Outstanding. Failure there has a lot greater impact than in something like Customer Support, but it is an area that the Suppliers are stepping up to the mark on.
Key Fact 2. On a monthly basis, will the Shared Service team offer, from their own funds, rebates to the business of up to 15% of the cost of the services they deliver? While the exact amount at risk will vary between suppliers, they will offer significant discounts where service levels are not met. It is essential to note that a well constructed contract will lead to constantly improving service levels, so the bar will be raised quarterly, if not monthly.
3. The Cost Of Transformation
For many years, the outsourcers played a cost-only card. Regardless of whether the delivery was onshore or offshore, it was relatively easy to offer lower costs than most internal organizations. Come 2012 (and probably since 2010) the value proposition has moved on significantly.
Now the Suppliers come with a toolset – technology, people, and methodology – that drives “Big T” Transformation and “Little t” transformation. “Little t” brings the day-to-day change; “Big T” brings the headline-grabbing changes. Often this gives access to changes that were unlikely to be funded in any other way.
As an example, the biggest area of opportunity is in leveraging the Supplier’s investment in technology. One client had recently expected to invest a minimum of $500,000 to implement a automated reconciliation tool. Getting approval for that spend had taken almost 12 months, and was high on the list of programs that was likely to be cut from the Investment Plan. So delivering it at all was highly unlikely.
The deal that they were able to strike with the Supplier delivered their operational tools and also embedded it in the pricing, removing the road-bump that was preventing access to the improved, automated process.
To be honest, some of the home-built technology are not the prettiest of things, but they come at a price and an operational improvement that will make you focus on the value they drive, not how they look. Other suppliers, however, have bought third party technology companies that come with world class technologies that will be as good as or better than the ERP competitors.
Key Fact 3. You can work to build an outsourcing deal and delivery model that cuts the investment that you have to make to address key, process-improving projects.
Key Fact 3a. Please note – I always emphasise to clients that they still need to invest in their service going forward. It is a myth that all investment goes away, but you can certainly be creative in how to get the best service quality and a pricing structure that helps the Buyer and Supplier.
4. “Flash To Bang”
When referring to Flash to Bang” I mean the time between taking the decision to move to a new delivery model and reaching optimum delivery and efficiency levels in the chosen model.
One of the “Lost Costs” that we dwell on in projects is the time difference between a “build yourself” option and a “buy it in” option. Like most things that we choose to do ourselves, timescales are more fluid than those that are commercially underwritten. Having an outside party responsible for delivery does not guarantee success and we can all share horror stories about projects that have gone wrong. However, the penalties attached to failure are a lot more transparent when external parties are involved.
Where the greatest impact is felt is in the time it takes to reach optimum delivery/efficiency levels. As an example look at a greenfield environment, where nothing has been centralized. Given a standing start, an internal Shared Services Center will take around 6 months longer just to be established. At that stage the Outsourced model will have been operating at full efficiency levels for 6 months. There is a clear opportunity cost within that.
Key Fact 4. Commercially contracted projects are 75% more likely to deliver on time, and nearly 100% of them are promised to be delivered sooner than any internal, equivalent project. The financial impact of this is hard to generalize about, but having a project completed sooner, leads to benefits earlier.
5. Staff Skills – what percentage of your staff are Six Sigma Trained?
The growth of Six Sigma training within the workplace has been impressive over the last 10 years. For many organizations there will be some staff with these skills, though further investment is always dependent upon the budget being available. The question – and the opportunity – is what percentage of your staff have this kind of training. More prescient, it is also worth asking how frequently their skills are drawn on.
One of the revelations of site visits to the Outsourcers is the sheer passion that the delivery teams bring to every client. The prospective clients who take floor walks of existing operations always comment on the drive, engagement, and hard, proven business improvement case studies that are discussed on the tours.
Really what the outsourcers are doing is encouraging their staff to cut their customers’ costs. While that will lead to short term revenue losses to the Outsourcer, they bank on the fact that it will lead to even more work in the future. From most deals I’ve seen this is exactly what has resulted.
Key Fact 5. For most specialists in Finance Outsourcing, almost 100% of their delivery staff will have some kind of Six Sigma or Lean training. More importantly, they will be incentivized and rewarded to identify and implement projects on a daily basis. For even the basic online Six Sigma training, $2000 per person is a starting point – that is investment that you no longer have t make. Outsourcing gives you access to a skills base that has made that investment already.
6. The Price of Flexibility
Often the feeling of Outsourcing is that it is “More For Less”. Taking almost a Supply Chain approach to meeting your future delivery needs means you have to ask the following questions:
How much will it cost to reduce delivery capacity?
What fixed costs will you be left with, even after reducing headcount?
What will the cost be of increasing capacity, whether to deal with an acquisition or just increased volumes?
How quickly can you get the headcount sign off to increase volumes?
What are the onboarding costs (e.g. recruitment, training etc) of adding new staff?
What is the time between recognising the need for increased volumes and having the resources in place to deliver them?
In the modern employment world, temporary resources can give much upside flexibility. Employed for longer, they can also provide the downside flexibility. Until then, they come at a premium that will blow the $34,000/£22,000 fully loaded cost comparison out of the water.
From a 2012-2017 planning perspective I always challenge clients to map out the widest possible range of events that could impact their business. We then carry out an exercise to ensure that their delivery operations – whether insourced or outsourced – are able to address those scenarios at a cost and speed that is proximate to the event.
This is all based on a lot of tough learnings from the last four years. One client, who I recently advised on renegotiating their arrangement, had only factored in upward growth in their contracted volumes. The concept of their business shrinking had seemed alien when negotiating their first arrangement in 2007. Their new contract takes as its starting point the need for a delivery model that adapts operationally and commercially to all future volume scenarios.
Within the certainty of zero or low economic growth, it is the strategic attraction of outsourcing that should provide confidence. Suppliers should be able to react to upturns in your volumes within a matter of weeks. Most events causing this can be foreseen and planned via the normal Service Management procedures.
Planned reductions in volumes can occur on a timeline determined by the client. Unplanned reductions may take 8 or more weeks to filter through to the monthly invoice. Suppliers take differing views on how they recoup their investment in deals, so scenario planning should be taken early on with the down-selected Suppliers.
Key Fact 6. Suppliers offer a significantly more flexible delivery model than any internal function can offer. They have the ability to bring on resources faster, at a lower cost, and reaching a faster level of efficiency than an internal delivery model. With proper account planning they also offer a model that more easily “breathes in, breathes out” to match actual business volumes.
Key Fact 6a. I always warn clients that they are investing in their Supplier, so losing key resources when volumes shrink is a risk. However, the knowledge in an outsourced environment will be more heavily documented and captured in an educational process that can deal with both natural and forced attrition.
7. When Did You Set Up Your Shared Services Operation?
The most common determinant affecting the strength of the Outsourcing business case is the age of the operation. It is worth looking at the business case for any Shared Service Center set up before 2009. The older it is, my experience is that the better the business case is.
A number of the points raised above drive this. Typically, the last serious comparison between outsourcing and insourcing, whether a Benchmark study or a full blown assessment, will have been done several years ago. Since then, limited spending on benchmarking and consulting has reduced the focus on the external world and increased it on the internal operations.
It is worth dusting off those old Shared Service Center business plans. When organizations set up Shared Service Centers in the 1990s and through to the late 2000s, most paid lip service to Outsourcing. It was usually mentioned as a likely future option, but that they would be able to deliver most of the savings internally, by themselves, via Shared Services.
Fast forward to 2012 and I can honestly say that every client I’ve had in the last 2 years has been shocked at the strength of their business case for Finance Outsourcing, even after years of operating a SSC environment.
In the “new normal” world of zero or low economic growth, and with little investment available for back office services, Finance Departments are now taking a fresh and more sophisticated look at what Outsourcing can deliver.
Key Fact 7. If your internal operations are more than 3 years old then there is an 80% chance (based on my experience on over $5bn worth of deals) of there being a strong business case for outsourcing. The costs of investigating it are now lower than ever, and the results give you a clear confidence.