In the world of business it’s all about increasing sales while minimizing or reducing SG&A costs. The work streams that fall under the “Order to Cash” (OTC) umbrella represent a significant part of a company’s SG&A expenses and as a result face ongoing pressure to develop strategies that focus on reducing costs without sacrificing service to customers and other internal parts of the organization.
OTC Structure – Historical Review
I remember learning a very basic principle in one of my college business classes that I’ve seen hold true time and time again. “Everything in the business world is cyclical!” In the world of customer service, or Order to Cash, this used to play out as companies moved back and forth from “decentralized” to “centralized” work environments. This was driven by the philosophy of the time. The theory behind decentralized was that you were closer to the customer while centralized was considered more efficient and cost effective since the work could be standardized and you didn’t have “redundant” processes.
Centralized work in the 80’s and early 90’s was usually managed by functional experts in the various aspects of the order to cash process. There were separate groups or departments for Order Management (aka Customer Service), Credit & Collections, Cash Application and Deduction Management. In the 90’s, many companies moved to a “One Stop Shop” business model. The theory was that better service could be provided to customers if they had one contact in the organization that handled all aspects of order to cash.
OTC Structure – Current
In recent years there has been a trend in moving away from the “One Stop Shop” strategy and back toward functional expertise models. Once again, the “everything is cyclical” principle holds true. In many cases however, the trend of moving back to a functional expertise model has taken place to enable companies to look at “outsourcing” as a way of reducing expenses. By breaking the processes up, companies can target specific work to be considered for outsourcing vs. work that needs to stay. i.e. – right work, right place. Outsourcing has evolved to include offshoring where work can be moved to processing centers throughout the world. In some cases companies have set up their own “shared service centers” located in lower cost regions.
When considering a good strategy, it is important to note that one size does not fit all. When evaluating whether to outsource/offshore it is important to consider the goal. If cost is a major factor for a company, then offshoring needs to be seriously considered because of the savings in labor arbitrage. In some cases however, companies may not want to consider offshoring from a public relations standpoint since they don’t want to be associated with being an “outsourcer of work to other countries”.
Based on personal experience, as well as observations of the journeys that other companies have been on, here are some things to consider when evaluating outsource/offshore as a part of optimizing order to cash structure and workflow.
- Identify specific work to be moved. Typically companies start with “back office” type activities which don’t require direct interface with customers and the sales organization. The thought here is that those relationships should stay within the core organization to ensure any changes are seamless to the customer.
- Complete cost/benefit & risk analysis of outsourcing based on type of outsource being considered (onshore vs. offshore) in some cases larger companies may include analysis of utilizing company managed shared service center(s). Consider potential language & time zone implications with offshore option.
- Develop specific recommendation and secure senior leadership approval and sponsorship.
Once Senior Leadership Approval and Sponsorship is Secured – Next Steps
Develop comprehensive project plan to include:
- Automating as much of the process as possible by taking advantage of current technology. Elimination of manual processes will be better in the long run than simply moving work to a lower cost solution (consider solutions available through HighRadius)
- Development and implementation of a “paperless” workflow process (consider solutions available through HighRadius)
- Fix any “broken” parts of processes to ensure success. Moving a broken process with the thought of fixing once it is moved will reduce the likelihood of success. Streamline and simplify whenever possible
- Training Plan
- Clear, concise documentation of process as well as documented exceptions to the process or any customer specific nuances (Customer Profiles).
- Process maps of integrated workflow between outsource and existing organization clearly showing roles and responsibilities
- Establishment of service level agreement with appropriate metrics
- Project timeline
Utilization of BPO’s
In many cases, companies will choose to work with a major BPO company like Accenture or Capgemini. The specific company they choose is usually based on the results of their RFP (Request for Proposal) process where several companies participate. These companies have processing centers in strategic locations throughout the world and can accommodate a wide variety of language requirements if your plans go beyond your U.S. operations. A big advantage of working with a major BPO is that they have A LOT of experience working with many different companies in many different industries on many different processes including OTC.
OTC – The Future
Although the current trend shows more and more companies are looking at outsourcing/offshoring as part of their strategy, it’s hard to say how long that trend will continue. Costs are steadily increasing in areas that have historically been considered “low cost regions” which could warrant a strategy change down the road. As politicians continue to address the U.S. economic/unemployment challenges they will more than likely be looking at providing incentives for companies to keep jobs in the U.S. which could also warrant a strategy change. Nobody knows for sure what the future holds, however if the “everything is cyclical” principle continues to hold true, that might give us an insight into what things will look like longer term.
Where do you see the future of OTC in the next few years?