Effective Migration

Vodafone has become the latest multinational to set up an ‘internal outsourcing’ model. As the process of migration gathers speed, CFO Andy Halford tells FDE why he is cautiously optimistic.

Like many global tech businesses, Vodafone spent ten years growing to critical mass through acquisition, and then spent another few years looking to slim down and dismantle some of the unwieldy structures. With every new business unit bought came another set of finance functions, procurement processes and tax compliance. By 2006 the structure was beginning to groan under its own weight.

Cue Andy Halford and his executive team who decided a radical re-engineering of the company’s processes was in order. For Vodafone that meant setting up a new shared services centre just outside Budapest, followed by a facility in India. The centre handles a range of business processes, and so far several national business units have come on board handing various IT and back office processes over to the Vodafone Operations Centre Hungary (VOCH). So what made Vodafone, a growing international business with operations in scores of countries, opt for a shared service centre in a quiet corner of Eastern Europe? Why not just outsource the lot?

"It goes back to shortly after I took over my current role as the group CFO, and had a look, initially, at the whole of the finance organisation around the group," Halford explains. "To be fair, it didn’t take a brain surgeon to conclude that the previous approach had been pretty autonomous on most of the systems and processes. To then use a central consolidation system to glue things together was okay, but not without its limitations."

It became clear after a cursory examination of the firm’s systems that efficiencies in the transactional areas were not being realised. That was partly because Vodafone as a business was becoming more sophisticated, leading to a broader range of issues to deal with as multiple new data products were launched.

"Actually gathering information across the group just using one consolidation system was becoming a little bit of a challenge," says Halford.

Initially conceived as a simple back-office plan looking at low value processes such as billing and transaction processing, Project EVO soon broadened out.

"Out of that came the classic response of ‘well, if you're doing that, then frankly you should be doing it with the supply chain as well, because a lot of the financial benefit will come out of the procurement side, and, by the way, whilst you're doing that, you should do the HR side of it at the same time,’" Halford explains.

And so began a three-year process designed to get one standardised business model set of systems and processes that would encompass all the finance, procurement and HR activities across all of Vodafone’s businesses.

For Halford it presented a dilemma – how do you migrate such a global business over to a new way of processing its transactions and beyond? Processes were to be centralised and streamlined by the new system, and many areas of control were leaving the hands of operational managers to be taken over by the Budapest centre. Where to start?

"We decided that we would do it operating business by operating business, rather than process by process, and that therefore by inference, when we did an operating business we would do all the processes in one go," he says. "And the second decision that we took, was that if part of this was trying to get the transactional efficiency that we would first of all go with the shared service concept.

"Secondly we decided that we would transfer the transactional ability to the shared service centre on the day that each operating business goes live, rather than at different points in time. The risk otherwise that is you have to train up people on the old systems and procedures, as well as the new ones. So it was decided that the go-live date would be the date that each operating unit also hands over all its transactional activity."

The migration gathered speed in 2008, with the Budapest centre taking in its first ‘clients’ in the September of that year. Since then work has continued – Vodafone has brought onto the EVO platform the biggest European operating company from Germany, which joined in April and is currently in the stabilisation phase. The next big challenge is to migrate Portugal onto the system.

Team quantity and quality

Currently, the company has around 260 people already working in VOCH, overseen by Halford’s able lieutenant Robert Horvath.

"We also have more than 400 already in India, so we're going to be invited to share in its organisation," says Vodafone’s global director, shared services. "The 260 in VOCH are expected to increase over the next two and a half years to more than 600. So what we're seeing is exponential growth in our EVO journey."

So far, so good. The decision of where to locate presented the next challenge. VOCH was designed to service 16 different operating companies in various different languages, from Portuguese, to Hungarian, English, German, Greek and so on. Hungary suggested itself as the ideal location early on, according to Horvath.

"Today, you’ve got around 40 shared service centres in Budapest, so it’s become the shared services centre within Central and Eastern Europe over the last decade," he says. "From Vodafone’s perspective, as with every company I suppose, when you're looking at where to locate there's a weighted scorecard involved. And you need to find a balance and ask: ‘What am I looking for?’ Clearly, there are always four elements. Cost is a key element. Talent availability is another one, followed by infrastructure and general business environment."

A key early decision for Vodafone was to retain all of the processes, many of which would seem ripe for clean outsourcing to a third party provider. It’s a subject that exercised the executive team, and something Halford admits they were unsure of at the beginning of the project.

"It does bring into focus whether you do the service centre under your own ownership and management, or whether you outsource all of that side of it," the CFO admits. "The view that we came to was that because back then we were probably unable to articulate with enough clarity what we would outsource, we’d be better off hiring in a very, very good team, doing it in house and managing it ourselves."

In Halford’s view, investing in a team with the necessary skills to deliver – and back them up – gave Vodafone the ability to accommodate changes in the overall programme sequence.

"That meant we avoided ending up with long discussions with a third party," says the CFO. But he’s at pains to point out that the current set up isn’t set in stone.

"Three, four, five years down the line, once we get it running efficiently in house, then obviously we can look at different options, but essentially step one was an in-house solution."

Road test

Halford, Horvath, and EVO Programme Director Niall O’Sullivan laid the ground work in a long series of exercises designed to test the effectiveness of the system ahead of its implementation. For the CFO, the emphasis was on collaboration and testing hypotheses to see what worked.

"First of all we did an unusually large amount of workshopping in a very, very short period of time with our colleagues from across the finance, HR and procurement functions to, in essence, break down the barriers of different departments."

"We very deliberately tried to take a collegiate approach, so that the businesses were very much the architects of the future solution rather than holding on to the perception that the centre decided, and therefore were imposing a solution, which had been the case in the past.’

Determined to see the migration through successfully, the executive team made efforts to encourage a broad tent approach, ensuring the central team coordinating it were deliberately chosen from different operating company backgrounds.

"Again, they were seen as people who had the operational experience and were not just sitting theorising in the centre," says Halford.

The second key difference was the incentive structure for those working on the migration. Both Halford and Horvath had experience of previous business transformation projects and were determined to use a more proactive and positive approach as opposed to imposing penalties for non-compliance.

"We were committed to making this happen, and we knew there would be bumps along the way," says the CFO. "But what we wanted to do was to encourage people who found ways around bumps, rather than people who were going to find reasons why the bumps made it less appropriate to them."

In order to achieve a smooth transition, staff were targeted to deliver service targets in order to keep EVO on track. The key areas of focus for the new shared service platform are as you would expect: purchase to pay terms, which have been targeted for improvement, as has reducing the company’s day sales outstanding (DSO) as well as the issue of bad debt. Alongside that, statutory reporting will be offered, as well as revenue assurance, resourcing and budgeting and some governance functions.

The measure of success

Naturally, alongside the immediate benefits of reorganisation and efficiency within the back office functions there needs to be demonstrable improvements in working capital. For the CFO focused on the bottom line, the temptation becomes one of judging the new set up solely on its cashflow performance. So has Halford set a financial benchmark for the people behind EVO to achieve? Not quite.

"I think it's going to be progressive, because clearly the totality of the working capital benefit will come when we've got all of the operating companies across," he says. The key now is to review Vodafone’s operational systems to see exactly where improvements are required. "The way it's been set up is going to ensure that we have got a huge visibility on a global basis as far as everything that we're procuring," says Halford. "Whereas in the past we may have been making payments to third parties separately in each operating company, that is now progressively being standardised. But of course it is a cumulative thing; until the last operating company crosses over with its volume coming on to it, we won't be fully there.

"But the world that we've got the vision of is a very straightforward one, where we will have very, very good visibility on a global basis of everything going through working capital and I have absolutely no doubt already, as we start to put the design in place, that there are opportunities that we've spotted within the businesses that they can benefit from."

So alongside migrating each operating business in turn adapting the service offering accordingly is now the next step. So while the heavy lifting continues, Horvath, Halford, and O'Sullivan monitor how each migration goes in order to ensure continuous improvement. It’s something the CFO is determined to get right in order to realise the projected benefits on time.

"When you talk to other people they give you horror stories about how many of these programmes ultimately don’t actually deliver, or how budgets end up being multiples of the original budget, so I think we went into it knowing that there was a lot that we had to learn about it," he says.

It’s early days yet for EVO, but so far the signs are encouraging: early adopters are happy, feedback is positive, and there hasn’t been the kind of systems meltdown that can affect projects of this type.

"Naturally, some are easier than others,’ says Halford. ‘But generally I think we were fairly open to the shortcomings and we tried to address those as best we could."