Outsourcing Excellence Award – Best EU – Thomas Cook UK & Ireland and Accenture
Thomas Cook, the second-largest travel company in Europe and one of the largest in the world, had a financial itinerary it didn’t like: it was losing money, according to Martin Alley, Director, Shared Services and Procurement.
To make the road to recovery even more difficult, Thomas Cook’s new competitors had much lower cost structures. “We had to cut costs to match theirs,” he says.
The company’s history didn’t help its recovery travel plan, either. C&N Touristic AG acquired Thomas Cook, which had 23 separate office locations in the UK, in 2001. Alley says Thomas Cook was built by acquisition; at that time the company’s three business units–sales, tour operations, and its airline–were not operating as an integrated business. “Our supporting infrastructure reflected a patchwork of disparate processes. Everything was decentralised; each business had its own back office,” he recalls.
The new management decided to change routes. It responded to these operational challenges by enacting a multi-process transformational programme to cut costs, improve margins, and vertically integrate operations. This included reducing the high cost of back-office functions by using an outsourcing supplier to provide the service Thomas Cook needed.
The executive team hired Accenture to help it think through its shared-services strategy. “They wanted to understand how it could fit into their bigger transformation picture,” says Suzanne Shenton, Senior Executive in Accenture’s Outsourcing business.
The final decision: outsourcing could create the turnabout the company needed. “They wanted a new back-office ERP solution. They wanted to process all transactions in one location instead of 13,” recalls Shenton, who is Accenture’s General Manager for Thomas Cook’s outsourcing programme based out of the Accenture Shared Services Centre in the UK on Thomas Cook’s campus.
What’s so remarkable about this relationship is the difficulty of achieving success when you outsource everything. Large multi-process outsourcing arrangements have an enormous amount of complexity because they require a huge amount of change management, excellent and continual governance, and on-going buyer support from the highest level. Getting all these ducks in a row makes success so much more difficult (like trying to get airplanes to take off on time). Even today, many multi-process deals fail. When this relationship started, almost all of them did.
The end result: a successful journey. “We were losing money at the outset. Now we’ve moved to significant profit. The UK and Ireland business made £87 million profit in 2005/6. We had a five percent margin, which is exceptional for our industry. Outsourcing was clearly a contributor to this,” says Alley.
Alley says Thomas Cook went through “a very robust supplier-selection process” issuing a Request for Information in 2001. Thereafter it issued a formal tender process. The travel company looked at four large suppliers. “We had a weighted basket of business requirements,” he says. Thomas Cook executives talked to references and visited a number of locations.
In 2001 it signed a 10-year contract with Accenture for full-service BPO, including Human Resources, Finance and Accounting, and the underlying IT and applications management.
Today Accenture has 440 employees providing services to Thomas Cook. The supplier processes more than three million accounts payable invoices and two million accounts receivable invoices a year. Accenture supports 12,000 employees and 750 physical locations. It also manages 300 applications and more than 400 services.
The Transition Period
Accenture employees spent six weeks shadowing Thomas Cook employees. Then Thomas Cook migrated to Accenture’s onshore service centre, a job that Accenture promised to do in just 12 months.
The first challenge came in the process mapping stage. Alley’s team discovered over time its staffers had made changes to the process “to make the world go round”. “We found the process we mapped in our manuals did not always reflect what happened in practice.” Alley says the Thomas Cook team had to “clearly articulate what our current practices were.”
They did this by setting up a number of knowledge databases. This became very useful when Accenture transitioned the work offshore to India in 2005. Alley says a beneficial by-product of outsourcing was the travel company now had accurate process information available.
Accenture had to “harmonise the business processes they had in place,” recalls Shenton. Each division had its own process for things like invoice processing. Accenture redesigned, then automated each process.
The two team leaders created a solutions forum, which met weekly to make joint decisions. “This forum enabled us to implement solutions in the timeframe to which we had committed,” says Shenton.
Two hundred and fifty Thomas Cook employees joined Accenture on day one. Alley says his former employees liked the offer since Thomas Cook guaranteed their terms and conditions would be maintained. “The change didn’t have an adverse impact on our ongoing business. The employees who went to Accenture were surprised to find their job valued. Post-transfer, they were the front line to performance and transformation,” says Alley.
The Thomas Cook executive says the transition caused no more disruption “than you’d expect. The key thing was open communication and managing people’s expectations. We told them what was going on every step of the way,” he reports.
Overcoming Offshore Obstacles
Three years into the contract, the partners renegotiated the contract to offshore half the activity. “After two years we knew Accenture was the right partner to work with and we wanted to take advantage of their significant presence in India. Indian outsourcing had matured a lot by 2004,” explains Alley. Today Accenture processes 70 percent of Thomas Cook’s work in India.
The partners discovered “it’s easier to establish a strong working relationship when you’re face-to-face rather than halfway across the world.” Thomas Cook sent its employees to India for extended periods of time to communicate process requirements. Then Accenture sent people from its India team to the UK to work within Thomas Cook teams.
“We had to go through some key learnings. There were geographic, cultural, and communication challenges. But they were short-term issues,” recalls Alley.
For example, Thomas Cook executives were concerned about offshoring because some of the work requires detailed knowledge of UK locations. “We had to train our people so they knew each location’s data points,” says Shenton.
Another goal: changing the Indian penchant for deference. “Culturally, we had to make sure people in Bangalore had the confidence to challenge us,” says Alley. Speaking up was important to Thomas Cook because it felt one of the key components of this relationship is for Accenture to challenge what it does currently to drive improvement in the future.
“During the early stages they were reticent to come forward and challenge us as robustly as they do now,” recalls Alley. They changed behavior by holding improvement workshops. They even built improvement into the governance structure. “It’s a standing agenda item for our meetings,” says Alley.
Dealing with the five-hour time zone difference was easier. Most of the client-facing people in Bangalore work UK hours. “They actually like those hours because they avoid rush hour, which can be a major problem in Bangalore,” says Alley.
Fortunately, Thomas Cook found the churn rate within Accenture is lower than the market norm in Bangalore: it’s between 15-20 percent. “Accenture has developed a number of in-house strategies to retain key people. We haven’t faced the challenges some people have in India,” Alley says.
Thomas Cook works hand-in-hand with Accenture “to get the most out of this relationship,” in Alley’s view. Adds Shenton, “This relationship has a well-run governance process. We deal with issues at the right level quickly.”
The two have established “a hierarchy of governance.” The operational teams meet on a weekly basis. Work stream teams meet monthly; they look at service levels, escalated challenges, and opportunities. The joint review board made up of senior management from Thomas Cook and Accenture meets quarterly; its members review the strategic direction of the relationship.
The contract has 300 service level agreements (SLAs) across the three work streams. In addition, qualitative elements such as customer satisfaction, innovation and overall process efficient are tracked quarterly on a balanced scorecard.
There is an escalation process for disputes. “We try to deal with them at the lowest possible level. In reality, very few problems ever get escalated to me. People feel empowered to resolve issues at an appropriate level within the business. I think this is a sign of how well the relationship is working,” points out Alley. The Thomas Cook executive notes neither party “threatens to refer to the contract or purposely goes down the adversarial route. If we have a challenge, we sit down and work out a way forward.”
Thomas Cook conducts 360-degree reviews every six months. “We seek feedback from key stakeholders from both communities to get their opinions on a broad spectrum of questions” like:
- Is this relationship contributing value?
- How would you rate Thomas Cook as a client?
- What are key areas for improvement?
Cost savings was the main driver for this outsourcing relationship. “Anything that enhances our margin makes a significant contribution to our profitability and continues to create further competitive advantage,” says the Thomas Cook executive.
The company saved 30 percent (140 million pounds) moving the process from in-house to Accenture’s onshore facility. Then it saved another 30 percent by offshoring, Alley reports. “We built into the contract that they have to reduce baseline costs year on year by four percent,” he explains.
There have been more significant gains, too. Better management visibility has allowed the travel giant to increase the amount of in-house (Thomas Cook) holidays it sells through its travel outlets. Since outsourcing, in-house holiday sales have increased considerably.
Alley says Accenture has been “the catalyst for business process reengineering.” Accenture examined Thomas Cook’s processes and reengineered them using automation, which takes out human error. “They track and flag issues by tracking their databases. They have proactive flags if they are about to fall out of an SLA,” Alley explains.
Historically, error tracking was a paper-based system. “But basically, it was part of peoples’ memories and couldn’t be clearly articulated. Now we are using lean Sigma techniques to look at processes and take out non-productive steps,” notes the Thomas Cook executive.
Alley says taking out errors and getting it right the first time “costs us less money, which maximizes our profitability. It also increases our competitive edge. Both drive us to a bigger position in the travel industry.”
Outsourcing integrated the company’s back office. Today it uses a single, integrated SAP application across the entire organisation “that has enabled us to accurately measure our operations. Now we know for the first time how much money we are making or losing and where the money is coming or going,” says Alley.
Shenton points out unifying business processes also improve compliance since every decision is data driven.
Accenture’s recruiting piece is “critically important to us,” Alley says. One of the company’s strategic goals is to recruit and retain the best people in its market; outsourcing has helped it achieve that strategic business goal.
Why This Relationship Works:
- They are a good cultural fit. “We selected the right partner to begin with,” says Alley.
- Accenture provides market knowledge. Accenture’s Management Consulting business provides experts to Thomas Cook to share best practices. “They teach us the key innovations in the marketplace. We get these workshops at no cost to us. It’s recognition of the value of our relationship to Accenture,” says Alley.
- The buyer continues to add scope. “We continually look for further opportunities for Accenture,” Alley says. Thomas Cook has increased the scope twice: it added its airline and specialist businesses.
- Both parties invest time and money into the relationship. We continue to invest time and resources to add more value to the relationship. Accenture does the same. They invest a lot of effort in growing our relationship,” says Alley.
- Both parties share risks and rewards. “This is a pragmatic relationship where both parties pull in the same direction,” says Alley.
- Thomas Cook had strong executive sponsorship for the outsourcing. The buyer’s Business Transformation Director, who has a board of director’s seat, got many of his board colleagues involved. “His support cascaded down. We needed this because this engagement required large-scale cultural change,” says Shenton.
- Accenture is on Thomas Cook’s campus. “We interact daily,” says Shenton. “We feel like we’re an extension of their team.””Our industry is changing. But we are developing our business to stay ahead of any challenges,” sums up Alley.
Lessons from the Outsourcing Journal:
- Outsourcing can help companies staunch the red ink by consolidating locations and unifying processes.
- Outsourcing clarifies processes because they come under magnification during the transitions process.
- In this case, offshoring three years into the relationship worked. By that time the two parties had established procedures and work patterns. Major change was already behind them.
- Outsourcing helps the buyer make money as its industry changes structurally. Offshoring is helping an old-line company compete with Internet-based competitors.
- Great governance and commitment from the top are necessary for large, complex, multi-process deals to succeed. And they require a huge amount of change management at the outset.