Outsourcing Excellence Award – Most Strategic – Microsoft and Accenture
After years of rapid expansion overseas, Microsoft found itself running vast global operations, (over 91,000 employees, revenues of more than $51 billion in 2007, and 100+ sales locations) that were supported by a fragmented finance and procurement organization. An 18-month assessment of Microsoft’s global finance operations uncovered a lack of standardized back-office processes; inconsistent use of shared services; subsidiary accounting functions distributed across 92 countries; too much time spent on closing the books, basic accounting transactions, and ensuring regulatory compliance; varying procurement business models; and systems that had reached maturity.
At the outset, Chris Liddell, Microsoft’s chief financial officer, outlined his vision for a global, integrated finance and procurement organization that would operate with efficient processes, effective controls, and clear roles and responsibilities. Taylor Hawes, general manager and controller for Finance Operations at Microsoft, led the initiative dubbed “OneFinance” to assess the current state, benchmark the organization, identify challenges, design and implement the future state of Microsoft’s global finance and procurement operations. In addition to objectives to achieve consistency standardization, and improved cost of operations, he recalls the assessment revealed they had “a significant opportunity to free up in-country finance resources to play a more strategic role in the business with value-add activities.”
Microsoft also established an objective to invest in systems and platforms for optimal delivery of services. “We needed to invest in a new procure-to-pay platform,” says Hawes. “We also wanted to create an outsourcing governance portal to enable transparency into everything happening in the outsourcing infrastructure.”
To determine which finance and procurement processes Microsoft could consolidate and potentially outsource, they assessed risk versus strategic impact across 11 different risk criteria (such as regulatory exposure and potential brand impact) if the outsourcing strategy were to fail to achieve the anticipated outcomes.
They considered both captive shared services and outsourcing models in determining how to optimize the consolidation and other objectives. Hawes notes, “Our research showed it would take many years to achieve the value we wanted to accomplish through a captive option in comparison to the almost immediate gain through outsourcing. That made the decision to outsource a straightforward one.”
On a quest to find the right service provider, Microsoft first issued a Request for Information, focusing primarily on the business case and economics of its objectives. After down-selecting to the top four candidates, it issued a Request for Proposal, focusing on the kind of strategic and partnering approach Microsoft was looking for in a provider.
“In the RFP, we also requested that the four providers come up with creative ideas for achieving our plans to build the procure-to-pay platform and for building (and being willing to use) the outsourcing governance portal.” Hawes explains Microsoft was very transparent and open during this solution-development process. They gave each provider an opportunity to respond with creativity in the deals proposed.
Microsoft awarded the contract to Accenture — the provider that came up with the strongest solution for achieving objectives and demonstrating the deepest strategic partnering approach.
The new strategic partners already had some history of working together in other contexts. “We are significant customers of each other,” explains Anoop Sagoo, senior executive, Accenture. “Aside from outsourcing, we have lots of other types of work at Microsoft. We have established a strong collaborative relationship between our two organizations over many years. We also have a fundamentally strong cultural fit.”
Governance and structuring for success
From the outset, Microsoft and Accenture implemented several best practices for success in strategic relationships. Their seven-year contract includes a gain-sharing incentive to keep their interests aligned, and they established performance-based milestones.
Hawes points out another key to success: “We negotiated a really good deal but also made sure Accenture will have enough funding to make the right decisions in helping us be successful.”
They are partnered at many different levels throughout the two organizations. Hawes refers to their governance structure as “one-to-one alignment.” The structure in the buyer organization mirrors the structure in the provider organization. They also have weekly calls to ensure they are aligned on all issues. The structure ensures they “jointly own and drive resolution on any issues. We each have our roles and responsibilities, and we’re very transparent from both sides on what’s the plan to mitigate and solve any issues.”
Jointly building the SLAs and KPIs in their performance management structure demonstrated Accenture’s willingness to stay aligned with Microsoft’s business needs — the SLAs include significant penalties. If Accenture fails in one country, the penalty applies to all 92 countries. Hawes says, “This was a way for us to bring comfort to our subsidiaries, big and small, that Accenture would achieve the proper level of service for everyone.”
“The Accenture teams are committed to overachieving on our performance requirements,” says Hawes. “Some of the SLAs are very difficult to achieve. For example: zero errors when closing the books and no negotiation on things relating to Sarbanes-Oxley. So far, they have done a phenomenal job on meeting the SLAs,” says Hawes.
He adds that Microsoft benchmarked its operation prior to outsourcing to Accenture and then post-transition to Accenture. He states that “from day one of go-live, they out-performed our prior centralized AP process.”
The two companies also jointly built a monthly balanced scorecard that rates all the consulting and outsourcing services that Accenture provides for Microsoft. For the outsourcing arrangements, 50 percent of the scorecard rating is based on performance excellence, 25 percent on business value delivered to Microsoft (including the creative ideas and process changes recommended), and 25 percent on customer satisfaction.
“This scorecard has helped us to stay aligned with expectations and performance,” states Hawes. “We are able to agree on the measures of success for Accenture and the expectations for Microsoft.”
Transition and change management
Before embarking on the transition, Microsoft and Accenture clearly defined their goals and agreed on priorities. The partners gave themselves a tough schedule; they planned to outsource 92 subsidiaries to the new platform in just 18 months.
They started the aggressive transition schedule with a pilot program in Microsoft Sweden. The transition team documented the subsidiary’s country-specific procedures; identified any global process exceptions; managed recruitment, training, and knowledge transfer to the delivery center; and then finally transitioned ongoing responsibilities over to the Accenture assistant financial controller. They repeated this process across the remaining 91 subsidiaries. “It was a complex transition. There were over 200 go-live events with a peak of 35 transitions running simultaneously,” notes Sagoo.
Critical to the successful transition was the relentless milestone management and what Sagoo describes as “military precision in project management.” He also cites getting the right level of engagement on both sides and having strong management to make decisions promptly and ensure smooth running of the business while the transition took place.
Sagoo says another key to success in their complex transition was Microsoft and Accenture devoting a lot of time to change management. He praises Microsoft, saying its HR and finance staff spent “a huge amount of time making sure the organization was ready to support this change.”
In order to gain buy-in from the Microsoft subsidiaries and ensure complete understanding of the transition, the partners put in place a dedicated change management program as a key component of the transition. A combined team from Microsoft and Accenture created global, functional, and subsidiary-specific communication plans to engage with the various impacted audiences.
Sagoo notes the OneFinance team met with all 92 controllers face to face to explain what was about to happen. “At the two-day Controller Connection session, we introduced the Microsoft financial controllers to the new operating model for finance. We collectively made sure people bought into the change. That made a big difference.”
Microsoft also included subsidiary leaders as part of the transition team to give subsidiaries confidence that “one of their own” from the region would be providing input and direction to the solution, rather than someone from corporate.
“We wanted to get it right from the start,” says Sagoo. “So did Microsoft. They committed their best people to make the outsourcing program a success. They put in as many hours as we did to get this right,” he continues.
“In all the implementation work that we did, Accenture was partnering, collaborative, and flexible in trying to reach the right outcome,” adds Hawes.
The outsourcing solution results in Microsoft’s improved capability to grow top-line revenue and achieve significant bottom-line savings in operational costs.
Microsoft realized a number of tangible benefits in just a few months including the design and implementation of a global set of standardized processes across 92 countries, an improved internal control environment, the ability to scale much more easily as the business grows, predictability of operational costs, a 35 percent run-rate reduction, and corporate insight into processes.
Focus on strategic, value-added work. To facilitate achieving Microsoft’s objective of the financial controllers taking on more strategic, value-added work, a new assistant financial controller role was created within Accenture to serve as the dedicated, single point of contact and act as an accounting manager for the Microsoft financial controller. This enabled the Microsoft financial controller to focus on adding value to the business rather than focusing on accounting transactions.
Technology. Accenture and Microsoft are collaboratively developing and deploying the Microsoft Dynamics platform (for the procure-to-pay process) that will underpin the OneFinance program. Part of the funding for this initiative is the cost-savings generated by Accenture’s economies of scale with the global Mircosoft footprint and from operational efficiencies.
According to Hawes, “Microsoft will grow top-line revenue through the enhancement of the Dynamics platform, reduce operations cost, and enable global procurement to generate significant value.”
Hawes points out a key benefit of outsourcing: leveraging the provider’s resources, expertise, and innovation. A plan to develop the platform together was part of what Microsoft was looking for in a provider. Hawes notes, “The vice president of our Microsoft Dynamics business said to me, ‘Never before has Finance come to me with a strategic idea, where they were able to collaborate with us to deploy, implement, and accelerate the time to market.”
Accenture and Microsoft also created the “Controller Workspace,” a BPO portal using Microsoft SharePoint technology. The site provides a single location for both Accenture and Microsoft to transact and manage their outsourcing issues and enable oversight of daily, weekly, and monthly finance processes. Microsoft financial controllers also use it to systematically manage the monthly-close process globally.
Procurement. According to Hawes, “The savings and the benefit through procurement that accrues to Microsoft generated a payback of our business case in less than six months.”
They created an Accenture procurement buy-desk to help enforce standard policies, which then allowed Microsoft to be more strategic and take advantage of the more significant opportunity to align its global procurement organization to drive global category sourcing.
“We’ve outlined a three-year plan to achieve a world-class procurement organization in terms of both efficiency and effectiveness,” notes Tim McBride, Microsoft’s chief procurement officer. “By working with the OneFinance team to create global ‘buy-desks,’ we will be able to improve procurement oversight, controls, compliance, and improve service levels to employees.”
Why This Relationship Works
This relationship operates on best practices for success over a long-term relationship. First they built a solid foundation of trust. “Our orientation is a partnering orientation versus a supplier/customer orientation,” says Hawes. “Accenture’s success is my success, and I feel equally responsible to deliver the outcome set out in front of us,” says Hawes.
The relationship is transparent and partner oriented at the most senior levels. This helps them work together flexibly. Sagoo says the partners make fact-based decisions when any issue arises. And they act quickly when a challenge appears. “We don’t string out decisions,” he notes. “And we solve them together.”
Hawes echoes this, stating, “We jointly own problems, and we drive resolution together. Both sides are transparent and both work on the plan to mitigate and solve problems.”
He adds that Accenture has been “strategic in its thinking about how to grow the business in a way that drives value to Microsoft.” They both collaborate on trying to achieve the best mutually beneficial outcomes. Both are very clear on the outcomes they are trying to drive; and they structured their relationship on a shared risk/reward basis, which keeps their interests aligned for success.
Lessons from the Outsourcing Journal:
- To succeed in outsourcing, create a governance structure that allows both parties to actively partner, manage expectations, communicate openly and honestly, be flexible, triage issues, and realign interests as necessary.
- Change management is crucial for success in outsourcing relationships. It facilitates the buyer’s stakeholder buy-in and reduces many risks in the transition phase.
- Select a service provider that demonstrates deep willingness to take a partnering approach in the relationship. In a relationship with very strategic objectives, the best provider will be one that also demonstrates creativity and innovation in coming up with ideas for meeting the buyer’s business needs.
- Include in the governance framework either SLAs or balanced scorecard components that measure and monitor the business value that the provider delivers to the buyer (including innovative ideas, and process improvement ideas), as well as customer satisfaction.
- Operational cost savings generated by outsourcing can be re-invested to fund technology initiatives or business-growth strategies.