Outsourcing Has Yielded Mixed Results So Far, Says Molson Coors CFO
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
I’m down at the Hackett Group’s best practices conference in Atlanta and just finished a video interview with Stewart Glendinning, CFO of Molson Coors, on the topic of outsourcing.
While the video won’t be up for awhile, I can report that Glendinning wowed the crowd of 250 or so finance executives in attendance this morning with a frank keynote address on the subject.
He essentially warned the audience that outsourcing is hardly the no brainer that everyone – from Wall Street analysts to third-party service providers – makes it out to be.
While the CFO stood by Molson Coors’ decision to outsource most if not all of its information technology, finance and HR functions in 2008, he conceded that the arrangement has yet to live up to billing.
The decision followed the merger of Molson and Coors in 2005, which was expected to produce roughly $180 million in cost savings. And while outsourcing has helped produce some of that, Glendinning – who was appointed CFO of the combined companies two years ago – acknowledged the arrangement with its vendor hasn’t been all smooth sailing. (He identified the outsourcer by name, but I’m leaving that out just to avoid starting an argument between the two.)
As a result of higher than expected turnover, largely in the vendor’s Indian and Costa Rican operations, for example, some of the labor savings that the outsourcer promised have failed to materialize. Glendinning said annual turnover in those two locations has run as high as 100 percent.
As a result, the CFO said the company was “a little shy” of the savings initially projected for the deal, due to project scope and implementation costs. He said that he would have to revisit some of these issue once the contract comes up for renegotiation in 2013. “You have to keep taking cost out,” he said.
In addition, Glendinning said that during the ramp up phase the arrangement produced higher-than-expected error rates in certain financial processes, and those produced an unwelcome payables backlog that threatened the company’s supply chain. And while he said some of the fault was that of Molson Coors, Glendinning noted that the outsourcer failed to bring it to the company’s attention, largely because of what Glendinning described as “reticence” on the part of its Indian employees to challenge their client.
While Glendinning said Molson Coors’ move to outsource was “the right decision nonetheless,” he cautioned the audience that there are a host of issues that finance executives must consider before going forward with such deals.
In particular, he noted that unlike IT or HR, more complicated, “sensitive” financial processes such as pricing and customer management probably should not be turned over to a third party.
“It’s not black and white,” he said about the decision to outsource. “There is a lot of gray in between.”