When DCI Management Group Ltd. decided to relocate from Scottsdale, AZ, to Kansas City, MO, the company faced a number of back-office issues.
Moving almost 20 accounting and management personnel would cost the company almost $700,000, including relocation costs, cross-training and double employment costs to ensure functions stayed up during the transitions, says David Erickson, CFO with DCI, whose National Dry Cleaning Inc. subsidiary owns 360 dry cleaning outlets in 16 states.
Moreover, since the company has acquired 13 different dry cleaning brands in the past several years, it was using a dozen different accounting, database and management software systems. Trying to consolidate that information into one central back-office was proving difficult, Erickson says.
“We needed to improve the back-office side of our business,” he says.
What’s more, Erickson found himself managing individual stores’ data processing systems and generating financial reports as needed. It became a time vacuum to generate reports, instead of being able to mull over prepared data, he adds.
“We needed to focus on keeping customers happy and producing a quality garment for the customer. Even as CFO, I have to concentrate on those issues,” he explains. “I have to concentrate on much higher-level issues than accounting and data processing.”
Turning to a Mid-Market Provider
The company turned to Core3 Inc., a Phoenix-based business process outsourcing company that provides accounting and data management software solutions along with core staffing to manage information. Core3 serves mid-market companies with annual revenues between $50 million and $500 million.
In October, Core3 and National Dry Cleaners launched a multi-year agreement for complete back-office outsourcing services. Under the agreement, Core3 is providing centralized support to the buyer’s 360 retail units across the United States with accounting, payroll, and information technology outsourcing services.
Last year, the BPO market was a $13 billion a year industry. This year it grew as competition, mergers, the need to upgrade costly systems, and deregulation forced companies to seek more streamlined back-office functions, says Rebecca Scholl, senior analyst at Gartner Dataquest, a technology research and advisory firm based in Stamford, CT.
BPO services allow companies to improve service levels, integrate IT and business goals, even reduce staffing levels – and focus on core business issues, she explains. Cost often isn’t a strong driver in the decision to turn to a BPO provider; in fact, DCI’s move will save it little – if anything – in the first few years, Erickson admits.
“It’s a matter of taking the headache away,” she says.
Retailers are prime candidates for BPO and outsourcing services, says Greg Scorseby, CEO of Core3. With hundreds of units across a broad geography, executives like Erickson found themselves splitting their time between back-office management and store operations.
“They had 13 different databases. There was no way to get an accurate view of store profitability by store and region without a lot of manual manipulation,” Scoresby explains. “That’s a huge problem. As with most outsourcing solutions, there has to be a certain amount of pain for someone to take this step.”
Working with a BPO supplier consolidated all the accounting, finance and data systems into one software application. That data is constantly updated, guaranteeing the buyer benefits from the latest software available, Scorseby notes.
The Entire Operation ‘Below the CFO’
Core3 also took on 18 of DCI’s back-office staff, alleviating the staffing headache, eliminating relocation costs, and ensuring a smooth transition to the new system, he reports. This way, Core3 can keep the staff together to handle payroll, controller functions, accounts payable, corporate accounts receivable, and fixed asset management. DCI retains a financial analyst, an internal auditor who will audit stores, and several technical staffers to service computers in the field.
“Below the CFO, we’re the entire operation,” Scoresby says.
Code3’s product is licensed from financial software maker FlexiInternational Software Inc., based in Shelton, CT. FlexiInternational and its licensees use the financial software as an ASP application and combine financial BPO services to small and midsize businesses. FlexiInternational’s BPO brand is its Financial Management Services Inc. outsourcing division, says Stefan R. Bothe, chairman and CEO of FlexiInternational.
FlexiInternational saw the BPO trend emerging in the outsourcing market two years ago, and developed its product and service as a way to bring added value to its clientele, according to Bothe. Where some companies were providing service-bureau-type products, outsourcing and BPOs took the model a step further, he continues.
In fact, Bothe sees software as becoming little more than a commodity. Bringing value-added service will create points of difference and higher value revenue streams between product and service providers.
“We saw that as the next phase,” he notes. “Outsourcing is better than service bureaus because with Internet and information capabilities you have a 7×24 access to your data. It just happens that your back-office accounting staff is no longer in your office.”
Erickson is relieved to have Core3 handling his back-office. With reports and data in hand – and the headache of managing a large staff behind him, he can focus on forecasting, customer quality and services.
“The real value of data is its predictive nature, not in hindsight,” he says. “They lightened that burden from us. To not have to manage that is an unbelievable relief.”
Lessons from the Outsourcing Primer:
- Feeling pain? Most companies turning to outsourcing must feel ‘pain’ before making the move.
- Consider outsourcing and BPO alternatives as a way to cut employee relocation costs.
- Fast-growing retailers or companies with multiple locations and a variety of technology systems situated across a wide geography can consolidate all applications in the latest – and most frequently updated software – by turning to outsourcing.