Can a large US-based restaurant company with sales of over $1 billion a year securely outsource its entire accounting functions to a provider in India — and in doing so slice accounting costs in half?
“My accounting staff is a controller and an assistant controller… necessary to manage the [outsourcing] contract,” according to Dusty Profumo, CFO of Church’s Chicken, a fast-food company with 1,546 locations — some franchised, some directly owned — in the United States and 16 other countries. Under a new outsourcing contract, Profumo now works not with US staff, but with 30 or so employees of an India-based service provider.
In January 2007, Church’s finalized its move to outsource its entire finance and accounting systems to WNS Global Services, a company that provides offshore business process outsourcing services, most of it through facilities in India.
The Service Provider Selection Process
Outsourcing BPO functions isn’t new to Church’s. At the end of 2004 it was purchased from AFC Enterprises Inc., which also owns Popeyes Chicken & Biscuits restaurants, by an affiliate of Arcapita/Crescent Capital Investments, Inc., an Atlanta-based private equity firm. At that time, all of Church’s accounting functions were already outsourced to a large service provider, Convergys, which handled the accounting, using US-based workers.
The contract with Convergys was due to expire at the end of 2006. With the deadline in mind, Profumo says, “we started the process of evaluating options [in early 2006]. Did we want to continue to outsource our accounting? Did we want to bring it back in-house? Did we want to stay with Convergys? Did we want to move to another outsourcer?”
Most of Church’s accounting functions are related to 300 or so company-owned restaurants in the United States, although Church’s also has another 1,300 or so franchised restaurants in the United States and various countries around the world. For the franchised restaurants, accounting is basic — collecting royalties and rents. But Church’s company accounting is considerably more complex, with payables, numerous general ledger accounts, fixed assets, rent accounting, utilities payments and other typical large-firm accounting functions.
Over the summer of 2006, Church’s spent several months evaluating formal proposals and meeting repeatedly with three contenders for the contract: Current provider Convergys, along with both Accenture and WNS. The company also considered bringing the process back in-house, but after calculating the cost, Profumo says, “We just didn’t see that it was economically feasible.”
All three of the bidders proposed using facilities based in India. In order to keep Church’s business by lowering its rates, Convergys also proposed moving its accounting facilities offshore.
The cost savings in outsourcing to India, it turns out, were striking. “Economics clearly played a role in deciding not to pursue bringing it back in-house,” he says. In fact, outsourcing to WNS, although not the lowest bidder, will cut Church’s accounting costs in half.
Evaluating the Risk
The idea of moving all accounting to India presented some potential risk, Profumo acknowledges. Lowering that risk was the fact that Church’s had already outsourced its IT functions to India earlier in 2006. At that time, Profumo visited India and was impressed with overall security in Indian facilities. “I went to three different cities” in investigating IT outsourcing, he says. “I did not visit WNS or Accenture, facilities but I certainly visited like facilities. I saw firsthand the kind of security, the kind of IT systems… and the professionalism of the staff and the scope of resources that are available.”
At each facility he visited, “they would not let me personally take anything into the operation areas where they service their customers. I literally could not take a pen or a pad; I couldn’t take a cell phone that had a camera…. Everybody was subject to search on the way in and on the way out of the various floors.” In fact, he found the security far superior in many ways to his own US-based offices.
Factors behind the Decision
Although the cost savings were compelling, choosing a new service provider was based on two other factors as well, the CFO says: the professional reputation of the provider, and knowledge of the restaurant industry.
All three bidding companies had solid reputations, and both Accenture and WNS had thousands of personnel in India already, Profumo says, so that wasn’t a deciding factor. Nor was restaurant expertise an issue, since all three bidders either had direct restaurant experience, or in the case of Accenture, had recently acquired a company with it.
Also key was WNS’ ability to work with Lawson, the financial ERP software system that Church’s uses. “The main negative in the Accenture proposal was that they required… that we change our existing financial systems,” Profumo says. That change, combined with the move to a new service provider, would introduce too much risk at one time, Profumo decided. “I didn’t want to take on a change to the ERP system at the same I was changing the outsourcing provider.”
Not a Perfect Solution
Profumo says that although the time difference between his offices and India has taken some getting used to, he has generally been pleased by response times. “If I send an email by the close of business, by the time I get in the next day, most of the time my question has been answered. Because they work during our night in many respects, the turn-around has been pretty good.” Also, he and his small US-based staff continue to have access to the Lawson system, so they can access files if needed.
Still, he concedes, there’s a price in having essentially the entire accounting department offshore. “It’s not the same as having them right down the hall, believe me,” Profumo acknowledges. “I’ve been in those situations and I prefer to have them right down the hall, but you can’t [do that] and expect the savings that we’re getting. It’s just not going to work. It’s a small price to pay for a very significant economic saving.”
Key service metrics in the contract include service level commitments regarding system uptime, and the number of correcting entries that need to be made. WNS, like Convergys before it, will eventually maintain an 800 number for restaurant-level workers who have accounting questions, such as during the nightly close-out procedure. “They’re going to call a 1-800 number the same way they do now; it’s just [that] they’ll be taking to a person in India vs. in Tulsa, Oklahoma,” Profumo says.
Moving Work from One Service Provider to Another
One challenge in moving the contract was potential difficulties in shifting work from one service provider to another — from Convergys to WNS. “It’s awkward in our situation,” Profumo acknowledges, “because you’re going from one company to another, and the existing company doesn’t particularly like helping out a competitor.” Over a three-month process, about a dozen WNS workers from India met with Convergys in Oklahoma for knowledge transfer and training. “All of the processes and procedures were documented by the new WNS team, reviewed by the existing current service provider [Convergys], and then validated by Church’s,” Profumo says.
“I honestly do not know whether anyone at the Convergys facility in Tulsa will lose their job or whether Convergys will switch them to new work,” Profumo says. “But there’s always that fear when the current provider loses the contract…” To address that issue, he advises working at the senior level, which is what Church’s and Convergys did. “You can’t do it at the level of the people that are actually keeping the books,” Profumo says. “You’ve got to get the commitment of the leadership of both organizations to make it work and to overcome whatever resistance there is on the part of people.”
To ensure that critical Convergys personnel would remain in place for the transition, Profumo arranged for Church’s to pick up the cost of retention bonuses for six or eight key people on the 30-person Convergys staff.
Time Spent in India
At the end of December 2006, the new team returned to India for user acceptance and parallel testing on the new system, which went live on January 1, 2007. “Convergys will continue to provide support through the year-end close… but all transactions effective January 1 will be processed by the new team,” Profumo says.
In addition, for the transition, Church’s US-based controller, one of Profumo’s two-person US staff, visited India for a week in December 2006, with plans to return in January 2007. The transition required a total of about six weeks of time in India for Church’s staff, Profumo estimates, and he expects to make perhaps two one- or two-week trips a year thereafter for maintenance. Overall, he expects to spend about 10 percent of his time managing the contract; during the transition, he spent perhaps 20 to 25 percent.
Profumo, now a veteran of two moves to offshore major functions, offers this advice: It’s far easier to shift to an offshore service provider if you’re already outsourcing that function. In Church’s situation, that was true for both IT and accounting. In any case, Profumo suggests, “You can’t underestimate the amount of time and effort it’s going to take. And if you manage it well, the service levels can be just as good if not better, with significant savings.”
WNS Global Services