Offshore rush no quick fix in finance pinch – The Australian Financial Review

AAPT chief executive David Yuile calls offshoring “your mess for less”. Photo: Nic Walker

Shaun Drummond

ANZ Bank’s head of global shared services, Simen Munter, says high labour and infrastructure costs mean Australian companies have to be 30 per cent more efficient in their finance teams than UK or US-based peers in order to compete internationally.

“If your competitors are in Asia – then it is really tough,” says Munter.

ANZ reported an record annual profit of $6.5 billion on Tuesday, setting the tone for the other major banks, which report this week. Munter says ANZ’s push into Asia is explanation enough of why the bank has embraced offshoring. The bank has made the biggest foray of the big four banks into Asia and wants to earn a quarter of its profits outside Australia by 2017.

Corporate finance teams are caught in a crunch. While company bosses want them focused on what’s coming, and running the numbers on strategic opportunities, regulators and auditors want them looking harder in the rear view mirror post GFC. So there is no choice but to become more efficient.

Combine those pressures with better technology, and a cheap labour force with rapidly improving skills, offshoring finance is almost irresistible. But while many international outsourcing firms cite Australia as their fastest growing market, they’re frustrated by the relative snail pace of adoption when, they say, so many industry sectors are ripe for it.

Plenty of senior executives are aware of the big risks that go with the big opportunities for savings. “Your mess for less,” is what AAPT telco boss David Yuile calls ­offshoring. Munter’s heard another term. “I have a friend who runs a big shared service centre. He said ‘you can do onshoring, offshoring, rightshoring, nearshoring, farshoring. Then there is shitshoring, when you just throw the shit overseas’.”

Governments here, too, have been more wary than elsewhere.

As tax revenue dwindled, outsoucers hoped Australian governments would follow the UK public sector’s rush to offshore in its post-GFC austerity drive. However, after considering it, the NSW government – the most advanced among the states in a renewed overhaul of its back office – has to date decided it’s too politically risky, relying instead on automation and attrition.

Outsourcers, however, are now watching keenly what the new Abbott government in Canberra will do after its Commission of Audit.

Lost quickly

Munter and Yuile say despite big cost differences between Australia and ­virtually everywhere else, savings are lost quickly if the processes remain inefficient and the people that need to work with the new foreign teams are not ­prepared, practically and emotionally.

Pratish Patel, director finance APAC/Africa at Ausenco, the listed engineering firm, is ­trying hard to ensure people losing their jobs to the company’s new shared service centre in Malaysia don’t end up hating him, and those that remain don’t become resentful.

“I am determined to do this right,” he says, banging the table emphatically at a recent SSON conference in Sydney.

Watching him with a degree of trepidation is a government finance employee who knows “finance transformation”, including job cuts, are coming when the state-owned electricity network where he’s employed is privatised.

Deutsche Bank director of finance Bryan Starkey feels captive shared ­services – offshore centres owned and operated by the company – are safer as they allow the parent to set and control culture.

“[Outsourced operations] still require the right culture, expectations, the right structure, the way it is integrated,” says Starkey.

Yuile agrees. He says if AAPT traversed the offshoring path again (it sold its Manila customer service centre to iiNet three years ago along with its retail business) they’d do it themselves rather than rely on a third party.

Offshoring results in a triple whammy: the emotional angst of cutting local jobs; the impact on morale and customer services levels; and the burden of extra transition costs. “You still have potentially poor customer service in the transition and you’re carrying two centres while you make the move,” says Yuile.

There is also the decline in customer service from staff who know their jobs may be cut as well as the drop in morale for those who stay. “Once one body of staff knows it is going, it tends to become quite demotivating,” he says.

Table of emotions

Ausenco’s Pratish is in the middle of that tough process. “We [block] days out, with accounts payable, accounts receivable, payroll, to sit down and put all their emotions on the table,” he says.

Pratish says “framing” is important – to show genuine concern for the future of people losing their jobs. Ryan McMahon, chief financial officer of Adelaide’s City of Tea Tree Gully, believes “staff need to understand [management’s] decisions, particularly those people who are still going to be there ­tomorrow”.

Mired in debt and losing local investment, the Tea Tree Gully council recruited McMahon to reduce cost and improve service levels.

It has cut 15 per cent of its finance team and about half its services are now outsourced, which has delivered a 30 per cent rise in “benefits” to the community. McMahon implemented a “service excellence review process”, which ultimately leads to outsourcing if teams can’t match the service levels and costs of an outsourcer.

“Everyone needs to be involved in the change, particularly if they are identified as those who will stay. Given that there are people watching over the fence you don’t want to kill the culture on the way through,” says McMahon.