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Enhancing productivity BPOs are on the right track
Subhasis Chatterjee
Friday, April 1, 2005
When Dallas-based diversified railcar and barge maker Trinity Industries (TRN) decided to revamp its Financial and Accounting (F&A) works, it boldly decided to involve a reliable Business Process Outsource firm and offloaded much of its finance management and accounting work to Outsource Partners International, Inc., a leading BPO outfit specializing in finance and accounting services.

For OPI it was a daunting challenge because NYSE-listed TRN Corporation had no sophisticated ERP system in place. Moreover, with twenty-two business units located across the US following 17 different accounting systems, OPI’s real challenge was to integrate the totality of operations and localize them.

When Jim Ivy joined TRN as CFO and Senior Vice President in 1998, he realized the need to upgrade the company’s antiquated accounting practices. But given the fairly complex nature of accounts consolidation, he initially dismissed the idea to outsource the F&A work to a BPO firm. Ivy, who is retiring this year, was the principal advocate and architect of Trinity’s F&A outsourcing strategy.

It is notable that outsourcing of financial and accounting services was not popular in those days. In that sense, TRN pioneered to create a new culture of outsourcing financial and accounting works from outsiders.

Generally, companies outsource a few accounting and finance functions or modules, such as accounts receivables, accounts payables and fixed asset accounting. But Trinity delved farther by outsourcing general ledger, payroll, billing, accounts receivables, accounts payables, fixed asset accounting, and even accounts consolidation.

This single experience serves as a case study on how to plan, execute and manage a broad outsourcing project. “I do not know any other example where a company is outsourcing its accounting and financial operations to the extent Trinity does,” says Clarence Schmitz, Chairman and CEO of OPI, the Los Angels-based F&A outsourcing service provider to Trinity.

Presently, OPI has more than 650 associates operating in six U.S, offices. Its shared services centers are in Bangalore, India and Dallas, Texas.

It is a well-established fact that whenever a new state-of-the-art financial system initiates operation it imposes significant cultural change within the organization.

People accustomed to the previous system at times find it difficult to make necessary adjustments to embrace new changes ushered in by the new operating system and Trinity was no exception. The work of mundane data entry operators in the ledger books increased as they had to do more analytical work coupled with learning how to operate in the new system. Trinity decided against internally implementing the financial system due to concern over cost overrun and lack of IT skills in addition to their unimpressive track record with prior system implementations. With assistance from consultant Everest group, Trinity short-listed BearingPoint Inc. (Formally KPMG Consulting) as system integrator and OPI as agent to handle the comprehensive F&A outsourcing assignment.

BearingPoint implemented an Oracle11i system, with 114 interfaces to Trinity’s legacy systems in the business units. “BearingPoint was responsible for the installation of the new Oracle system and we were there side-by-side with them consolidating the 17 different accounting systems into one,” says Schmitz.

Today, BearingPoint hosts the Oracle platform and OPI handles the management and staffing for the outsourced F&A functions. In the initial years, Trinity, BearingPoint and OPI focused on developing, designing, and training users on the Oracle operating system and planned the requirement for a smooth transition to F&A outsourcing.

In April 2003, both the new system and the outsourcing project simultaneously went live and after a long hiatus TRN was able to close their books and release second quarter numbers without further delay. Gradually, other process improvements became evident, one being reduction in the number of days for making cash receipts against receivable records.

Earlier, it took an average of 7.6 days which eventually decreased to 1.5 days, comparable with industry-adopted best practice standards. Additional process improvements were also evident, with significant reduction in the number of days to approve accounts payable invoices. This went from 22 days in the pre-implementation period to 3.6 days after the new system implementation. Earlier, there was no method to measure billing errors for which reissue of invoices was a normal practice.

But the new system is intelligent enough to reduce billing invoice error to a negligible 0.16 percent, listing Trinity among the top 10 percent of best practices for this process. Trinity is also among the top 10 percent list of companies of issuing error free payroll checks. The outsourcing of financial and accounting operations to OPI has helped TRN close its general ledger within five days, from an earlier seven days. OPI has hired approximately 70 percent of the individuals previously handling F&A functions across the enterprise at Trinity, totaling 80 people in all.

Today, Trinity is truly benefiting from a comprehensive F&A outsourcing strategy formulated by CFO Jim Ivy. But Trinity’s largest gain has been that the outsourcing of financial and accounting processes has given leverage to engage its finance professionals who were handling process-related works to concentrate on customer services and other value adding activities.

If the OPI-Trinity outsourcing model is one example of how to execute a successful outsourcing strategy, then Mumbai-based Epicenter technologies, a BPO specializing in the collections space, has remarkably recovered some of the faulty loans for a U.S.-based Fortune 300 bank. Two and a half years ago, the bank was under the scanner of Office of the Comptroller of the Currency (OCC), the banking sector regulator who monitors NPA (Non-Performing Assets) of different banks in U.S. The credit delinquency ratio of the bank was as high as 9.8 percent when the bank’s executive management decided to hire Epicenter’s services. “For us, the biggest challenge is to convince the defaulters to pay their dues while not violating any of the prescribed U.S legal compliances standards,” says Navnait, COO of Epicenter Technologies.

The collection agents working from the Mumbai office did exceedingly well and were able to decrease the bank’s delinquency ratio from 9.8 percent to 4.5 percent within two and a half years.

Tracking defaulters and pursuing them to repay their old debts is a specialized job and to accommodate, the call center conducts a six-week rigorous training program for all newly appointed collection agents. “We arm them with all the required soft skills so that they can convince the defaulters to repay their dues without much hassle,” adds Navnait.

In 2002, a leading US-based Internet Service Provider (ISP) with strong presence in the narrowband and dial-up market decided to foray into the broadband arena. They entered too late and the challenge was to convert their existing customers using their narrowband and dial-up connections to broadband offerings.

Acquiring new customers was a larger challenge than retaining their existing customer base. The company appointed Clientlogic, a leading international BPO that specializes in customer service, sales and technical support.

Clientlogic consulted with the ISP to procure a strategy. While 700 representatives provided support to the provider from ClientLogic’s North American offices, the technical support was off-shored to India. The whole off-shoring and on-shoring formula was worked out after making the cost-benefit analysis. As a result of this successful outsourcing strategy the ISP saved nearly $100 million in two years time and also won the 2004 J.D. Power and Associates highest ranking for customer satisfaction amongst ISPs in the US.

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