Outsourcing Excellence Award – Best BPO – Unilever and IBM
In 2005 Unilever took “a hard look in the mirror and decided it had to change,” according to Christian Kaufmann, managing director, Finance Business Services Europe.
The mirror reflected a complex and fragmented picture. Unilever’s employees in 24 countries used 18 ERP systems and hundreds of different finance processes. Unilever also employed a large number of people in each country; there were three business units with three CEOs and three separate leadership teams. “This was putting pressure on the top line,” says Kaufmann. “Because Unilever’s business groups operated as a loose federation, we had duplication, high cost, and varying quality.”
The consumer goods company launched the “One Unilever” program. Its goals: to streamline the business (including finance), achieve substantial savings, become more consumer focused, compete more effectively against its competitors, and increase growth. In Europe the ambition included establishing a European supply chain.
Making a radical decision
Until this engagement, Kaufmann says European businesses typically moved finance into an in-house shared services center before outsourcing the function to a provider. But the urgent need for reform meant moving straight to outsourcing. “We needed speed and flexibility. We had to make change happen. We had to transition and transform, not lift and shift,” he explains.
At the same time, Unilever announced it was also going to outsource its HR and IT functions as well as implement a single SAP system for all of Europe (this was not part of the finance outsourcing deal but certainly affected the outsourced processes). Unilever planned to implement all of these changes in parallel.
To mitigate the risk, it wanted an FAO supplier that had successfully managed complex processes. While cost was “obviously important,” Kaufman says the number one supplier selection criterion was “demonstrated capability to the scope we needed.” He notes IBM “had strong business process knowledge and deep technical expertise, together with proven assets and experienced teams. IBM also had the capabilities to handle the diversity of languages across Europe
Four suppliers made the short list. Then Unilever narrowed the list to two. “Ultimately, we chose IBM because we knew we could work collaboratively with them. Cultural fit turned out to be one of the key factors in the final decision,” says Kaufmann.
He says IBM invited its transition team to contribute to the negotiations. “We co-invented many of the details before we closed the contract,” he reports. He says even before either party signed a piece of paper, IBM was doing “a huge amount of work to make sure the implementation went well.” That’s when he knew the relationship with IBM “was going to work out.”
Transforming the process
Before outsourcing, invoices started in the mail room. Every vendor addressed its paper invoice to the relevant budget holders. After signing approval, managers sent them via interoffice mail to the accounting department, which would pay the invoice and then file the paper.
“Busy people held up invoices at various points in the process. Sometimes they got lost in drawers. It was a labor intensive and inefficient process,” notes Jean Stephane Payraudeau, director and Unilever senior project executive, IBM.
After outsourcing, “we said goodbye to paper,” says Kaufmann. IBM scans the invoice. Then its system uses OCR to repopulate the electronically captured invoice. The Bangalore team validates it. The system then matches it with a purchase order.
If there is nothing amiss, the invoice goes into SAP, which pays it. If there are discrepancies, the invoice goes to the person responsible. “Many of the invoices go straight through without the human touch,” he says.
Notes Payraudeau, “Now Unilever only deals with an invoice if the quantity delivered or the price is incorrect. Today there is just one way of working, which is very low touch.”
The transition: managing change in an 80-year-old company
Instead of tackling 24 countries at once, the partners chose to start the two-year project with just three. “We wanted countries that reflected the diversity of Europe, that were up for the change, and that would give us momentum going forward,” says Kaufmann. Spain, the UK, and Poland ticked the boxes.
“We deliberately chose countries with different challenges because we wanted to show that transformation was possible everywhere,” explains Kaufmann. Thanks to IBM’s work before contract signing, the first countries went live just 90 days after signing.
Since Unilever has been making and selling products in Europe for over 80 years, “there was a lot of corporate heritage,” reports Nigel Batty, t-Finance change management director for Unilever. “Change wasn’t easy.”
In fact, he says initially management in most countries was “skeptical that outsourcing could work at all, let alone offer any improvements. We knew we had our work cut out for us because we had to bring the future forward. It was a much tougher challenge than we anticipated.” In fact, he says changing people’s behavior “took a lot more time and effort” than changing systems and processes. “We learned change required sustained daily effort to embed the new way of working,” Kaufmann observes.
One thing that worked: bringing key opinion formers to an IBM service center where they could meet the IBM teams and see things working well. “We also had them talk to and hear directly the experiences of their peers in early countries to go-live,” says Batty. Finally, the partners created a DVD that walked every stakeholder through the new F&A process. It humanized the experience by introducing the people that worked in the Service Centers and listening to how they felt about working as part of the Unilever team.
Kaufmann says IBM did the project management and Unilever built upon that. “We knew there would be tremendous learnings, which we used in the next wave. We didn’t want to repeat any errors in subsequent implementations,” Kaufmann says.
“We anticipated challenges in the general ledger area, but we had hardly any. But we did have challenges in accounts payable and travel expenses because they are processes with a lot of touch points,” says Batty. He adds, “We worked as one team to resolve issues as they came along.”
IBM and Unilever had blended teams in each country. The partners used regional governance to oversee and guide the project, removing roadblocks and smoothing the way for the implementation teams.
IBM moved the work to three centers: Portugal, Poland, and India. During transition, both central teams co-located in the Netherlands. “We don’t have to e-mail anyone to sort things out. We just go downstairs,” says Batty.
Wave 2: Continuous improvement
Once the company settled into its new rhythms, it was time to launch Wave 2. “We looked each other in the eye and said, ‘How can we bring outsourcing’s advantages to life?'” says Kaufmann.
One of the first ideas was to streamline the new processes. IBM is rolling out a Vendor Query Portal so vendors no longer have to phone Unilever to check on an invoice payment or register a query. “The portal will allow us to establish an even more professional presence with our suppliers,” says Kaufmann.
Another example is the introduction of e-invoicing through IBM. “With harmonized processes and systems and one outsourcing partner, this has become a real opportunity that is already taking off,” says Kaufmann. The partners are also applying their newfound agility to other improvement projects including structural changes to handling inter-company balances.
Unilever established a customer advisory board with representation from each country. “We wanted to make sure we heard their voices,” Batty explains. In addition, Unilever polls the IBM team to “see how the Unilever guys are behaving.” Batty says these reports “can be surprisingly revealing.”
The partners refined their service level agreements over time. The original contract included a large number of measurements. “But that was before we started our journey. We wanted to measure everything because we didn’t know exactly what we should be measuring,” Batty continues. As the relationship matured, the partners “slimmed down the corrective measures.”
“We reduced headcount and streamlined the organization. “Now every transaction has the same look and feel,” says Batty.
Kaufmann says Unilever is enjoying the savings and improved process efficiencies and investing them into driving business growth. Just as big a win “was the benefits from our new processes.” Batty adds that having common tools creates business agility “because we now can roll out change more quickly. Now we can make an elephant dance.”
Taking out the transactional components of finance has allowed the finance function “to play a more strategic role going forward,” says Kaufmann. Now they are able to look for further business opportunities. “This is the ultimate measure of success,” says the Unilever executive.
IBM is also providing Unilever with better management information. Examples include pan-European customer information on cash collection as well as clearer patterns of business and employee expense spending.
Why this relationship works
“IBM is just as passionate about our business as we are,” says Batty. “We understood we were contributing to the reinvention of Unilever’s business,” says Payraudeau. “We’ve been aligned since day one.”
The IBM executive says both parties have the same “spirit” and share the same aspirations. “It’s not a formal contractual thing,” he says. Kaufmann says they both manage to the spirit of the contract instead of the letter “and would get upset if either side sat with the contract on their laps,” he laughs. In fact, he says only a few people at Unilever have ever seen the contract.
Trust has grown so that Batty reports “people are now willing to take risks for other people on their team.” He says they have “a real partnership where they share everything, including each other’s P&L.”
Another reason for success: people. Payraudeau points out Unilever “has invested in talent to work with us.” He says Unilever “assessed what kind of leadership they needed to drive this change, then pulled together a team of top talent to lead the effort. Then this team attracted its own top talent.” He says Unilever “took the time to define what the retained organization would be and then spent a lot of time helping the staff understand what was happening.”
At the same time, Payraudeau notes that both partners have kept the same people in key positions, heading the initiative and working together from day one.
Batty says this relationship has worked so well Unilever is using it as a model for managing all its outsourcing relationships. The finance team is sharing its learnings with their colleagues “since the company views this deal as best practice,” he reports.
“The One Unilever program worked. We are now one company in every single country,” says Kaufmann. “Hand on heart – this is amazing stuff and we are proud to have made our contribution to the success.” Batty points out that “this contract is groundbreaking in the FAO BPO sector in both size and scope.” He sees this outsourcing relationship “as a source of strength and competitive advantage for both sides in the future.”
Payraudeau marvels at the success of so much change. “We really turned the organization upside down.” He reports that the relationship is evolving and the two have already increased the scope of the deal to include significant aspects of procurement. That’s the sign of a satisfied customer and the start of Wave 3.
Lessons from the Outsourcing Journal:
- Good outsourcing relationships start at the negotiation table. In this case IBM began work on the project before contract signing to ensure a smooth transition.
- Longevity matters. In this instance both buyer and supplier have key people managing the relationship who were involved in the negotiations.
- Changing behavior is harder than changing processes. Don’t discount the difficulty. One way to help change is to start with the groups that support the change so you have a success story going forward.
Judging criteria: Best use of BPO to achieve the buyer’s objectives for process improvement while also achieving mutually beneficial business outcomes.