The CFO dance

by Theresa Avagliano

Michael Desrosiers, chief financial officer of Sterngold Dental LLC, got so involved in his company’s e-commerce outsourcing project three years ago, he was even consulted about what shade of blue would attract buyers of dental implants.

It’s not that he is a control freak. Rather, he viewed the company’s e-commerce site as a way to leapfrog the competition. Customers — mostly dental labs and dentists — were clamoring for the convenience of online ordering and buying. But the small, $20-million manufacturer of dental implants and lab instruments didn’t have the staff, or in-house expertise, to launch and maintain a site.

As co-leader of the project, Desrosiers and six other managers stayed intimately involved until the site launch. These days, however, his role has greatly diminished.
Desrosiers collects daily reports on order margins, sales volume, and profitability. He also receives periodic updates from the project manager. But for the most part, Desrosiers is out of the outsourcing loop.

The CFO’s early, deep involvement clearly paid off, however. A year after the launch, the site broke even, and today 75 percent of new business comes via the Web.
This is the dance that CFOs and other senior financial executives must do when it comes to their outsourcing initiatives. How much should they get involved and at what stage? When should they leave major decisions to the individual in charge of the outsourcing initiative?
On the one hand, they need to get intimately involved to assure success, given the high stakes that are being wagered. On the other hand, they don’t have the spare time to confer on every decision being made within their company.

Take John Peak, CFO of Transamerica Financial Corp. “In my world, a perfect day means that the [outsourcing] project goes live on day one, and I don’t hear about it until next year when the contract is up for renewal,” he asserts.
Yet, when pressed, Peak concedes that eventually, he does become involved in all of the company’s outsourcing projects. For example, when it comes to arrangements that are driven by the need to save on costs— which are usually tactical ideas that bubble up from business unit managers.— he evaluates the proposal and contract details. However, he gets involved right from the start when his company is forging strategic outsourcing partnerships.

According to Atul Vohra, president of outsourcer Majesco Software Inc., senior finance execs seem to play the position of the “informed and objective” player. They are not emotionally invested in a project, like business managers or project leaders can be, and therefore, have a keener sense of the project’s value, Vohra explains.
In addition, Vohra points out that CFOs inherently understand the tactical benefits of outsourcing. They are comfortable with the idea that “their company’s back office is the outsourcer’s front office.”

Transamerica’s Peak gets involved in the outsourcing relationship’s annual review. This includes Transamerica’s bill printing deal, which cut printing and mailing costs by 50 percent. Every year, Peak evaluates whether the outsourcer is meeting expectations and hitting targets, and whether new vendors or options (including bringing the function in-house again) are available.

That’s not to imply that squeezing outsourcing vendors on price is a CFO’s goal. In most cases, CFOs are looking at the bigger picture. Indeed, visionary CFOs seek partnerships more than relationships propped up by a supplier contract, notes management consultant and author Larraine Segil, who advocates a collaborative, rather than a commodity relationship.

Robert Levorda, CFO of electronic futures exchange Nasdaq/Liffe, certainly agrees. He says the company outsources three of the four major components of the exchange (technology, trade clearing, and regulation), while maintaining a lean staff of 19. The importance of forging a partnership-like relationship with the outsourcing vendor paid off big-time shortly after the company’s technology outsourcer, CenterBeam Inc., completed its full installation at the Nasdaq/Liffe’s Liberty Plaza headquarters in New York, across the street from the World Trade Center, on Aug. 31, 2001.

In the aftermath of the Sept. 11 attacks, the Liberty Plaza installation was destroyed. However, CenterBeam officials decided to reinstall the technology at their own expense in Nasdaq/Liffe’s temporary location to put the exchange back on line.

When Paul Stone, CFO of ClientLogic, outsourced his company’s financial systems’ support to netASPx Inc. about two years ago, he says he was more involved than usual in the project because there was a struggle to get buy-in from the IT department. “The IT staff had a very normal reaction,” notes Stone. They were confident that they could handle the system support in-house. But they had their hands full with customer service demands. “Frankly, we didn’t have the scale to do it ourselves,” he explains.

After the decision to outsource was made, Stone handed the project off to the designated team leader, the director of accounting for North America in this case. Stone receives periodic reviews from the team leader and monthly reviews from the account manager at netASPx, but that’s the extent of his involvement. “If I’m bogged down day-to-day fixing outsourcing problems, I’ll fail in my role as CFO,” he concedes.

Ramesh Ratan had a more practical reason for outsourcing the procurement function at Enanta Pharmaceuticals. He had to free the company scientists from slogging through telephone book-size lab equipment catalogs and sending e-mail equipment requests to the company’s one-person purchasing department. From Ratan’s perspective, Enanta’s manual purchasing process was eating up precious research time.

After working with a task force to choose a supplier and then negotiating an outsourcing deal with SciQuest Inc., Ratan walked away from the project. He explains the project needed buy-in from the bottom up, so he pushed the new system out to the users. “For an outsourcing project to be successful, a lot of people in the organization have to take ownership of it,” he adds.

It’s one thing to outsource. But, how does a CFO measure whether the arrangement is successful? Most CFOs say many of the metrics that are widely used are case specific.
For example, a call center might measure response time or the ability to solve a problem, says Alex Poberezhsky, general manager of Offshore Outsourcing Services at Exigen Group. However, he also points out that sophisticated clients bring a matrix of project metrics to initial meetings, and the matrix is presented by a group of people responsible for the project, not a single manager. Eventually those matrices help teams build a case for outsourcing that a CFO, hopefully, can’t refuse.

At the end of the day, declares Poberezhsky, “If you don’t have measures in place, you can’t build a true outsourcing partnership.”