For those of you who enjoyed Part I of our Charlie Aird interview and our webcast with Charlie and Nick Atkin last week, let's move on to the second tranche, where we talk about the future of the sourcing industry, the Global Business Services framework he's spearheading, and a little insight into how he views the changing environment for Big 4 consultants and boutique advisors.
Phil Fersht (HfS): So in terms of "Global Business Services" — which we discussed in our recent paper[i]— can you discuss the concepts and principles behind this? Why this is something you are driving so heavily at PwC?
Charlie Aird (PwC): In the past, organizations sourced ad hoc; by business unit, by country, or region. And they suddenly found they have 40 sourcing arrangements around the world, all with different standards, different governance, and different management and so on. Now they’re saying, why can’t our back office be as efficient as our manufacturing organization? When they are developing a product they usually have some sort of global standard and they have R&D prepared and they link marketing into it; so why should IT, finance and accounting, or HR be any different?
Many organizations have seen other companies successfully implement a global model and, and want to see if they can do the same. They find they have different processes all across the world, with different IT infrastructures and applications, and different cultures even in the same corporate environment.
Some clients keep tons of spreadsheets to track this; and you ask them, OK, who is company XYZ? Are they your clients in Brazil, or China? And they don’t know. How many staff do you have doing a particular function around the world? They don’t know. They don’t have visibility into this kind of thing. Then this becomes another special project.
Phil: I think what we’re seeing with organizations today is that their approach to sourcing their global operations is changing, and changing quickly...
Charlie: Absolutely. Today organizations are starting to address how they can build something to go into Brazil, for instance, that can be replicated and rolled out in other emerging markets such as China, India, or Eastern Europe, without having to reinvent these things each time. They put together this conceptual model with a set of principles and standards and often manage that from the core, but with global governance having a say in what it does.
From a global perspective, we’ve found that about 20 percent of any requirements — whether they’re statutory, regulatory or about cultures of a particular region or country — have to be taken into account individually. About 80 percent of these factors, they have in common. Some of that 20 percent are things like taxes, for example, a client recently put a lot of work in Costa Rica because of a tax incentive. They are actually taking things out of Brazil and outsourcing to the other country.
Often it takes management consultants to move them into that more standardized environment to help them with change management. One of the major things we do with major sourcing arrangements is change the culture of the organization. I wouldn’t say that sourcing or changing systems is the easy part — but it certainly is less difficult than changing the culture.
Changing and modifying systems, standardizing processes, and doing the project management — there are a number of initiatives associated with all of these. These all are undoubtedly difficult to manage, and quite often people in an organization have their daytime job, and they want experienced people to help them take care of the change management and that is how we are positioning ourselves.
Phil: You have been in advisory services and outsourcing for most of your career but especially in the last decade. How do you see it changing? We've had the pure-play boutiques for the last several years, and now we’ve got the management consultants really moving heavily in the space. Do you think the pure-plays will continue, or do you think the management consulting firms will really start to dominate over the next decade?
Charlie: Well, if our thinking is correct, it’s really no longer a transaction but a combination of many functions, and I think the major players like the Big Four, with a consulting heritage, are going to be the ones clients look to. I think it’s clearly not just running a procurement, which some of these organizations are extraordinarily good at — but it takes a multi-faceted approach. I am not sure the boutique guys will have the skill sets to do all of those things.
Phil: In terms of managing transactions, though, this seems to be a pretty lucrative business for the TPIs and all the Alsbridges of this world. Do you think we will see more boutiques enter that space now, or do you think this is getting pretty much commoditized and what we see is what we are going to get?
Charlie: I think it is commoditized, and some firms are trying to transition into other things. The smaller guys will try to at least incorporate some of the things that the big guys have. I have seen some of the smaller players getting more into research, going forward. There are a lot of transactions to be done, and we are finding a lot of organizations that were small- to medium-sized companies are starting to do more of the sourcing. The boutiques are more in the middle-market space. The Big Four organizations are starting to grow their practices and are scaling up, and it is becoming much more difficult for the boutiques to survive.
Phil: When you look at the global business services focus of your firm and the way it is developing, what do you think when you have to look at the industry today, and everything we have been through particularly in the last three or four years? What do you think we will be talking about in five years?
Charlie: It is hard to predict, but it seems like organizations are going back and looking at what they have done for the last five, eight, 10 years, and deciding what to do going forward. I think finding the next low-cost labor arbitrage for sourcing or shared services will be important, whether that is South Vietnam or Indonesia or some place in Africa. Because I think countries like India are quickly moving with price inflation. When I was first there in the early 90s we were paying programmers $100 a month, and now it is significantly more. Cost is always an issue. People will tell you it is compliance and visibility and all those types of things, and that is important — but cost will always remain a major driver.
There are a lot of organizations that probably have not looked at more than just the transaction processing part of this, and so they are looking toward more of the analytics part. Some global companies have moved their financial planning and analysis process offshore. Others have moved a lot of their product and development activities offshore, and others have dabbled in doing that. But this means giving thought to what other things we can put into an offshore environment. And I think we have gained enough knowledge that companies feel more comfortable taking more knowledge-based processes and putting them offshore, so I think there will be significant growth in that area.
Phil: When you look back on your career is there anything you would do differently?
Charlie: Probably try to plan it better. It has seemed so unstructured. That is a tough question, because I have enjoyed all parts of it. It has been interesting and that is what keeps me going. I’m well beyond retirement age and it has been so interesting and I’ve just been having fun doing it, working with all the clients and different cultures. So it has been an exciting ride and I am not sure I would change anything.
Phil: One thing you have talked about is your global experience and living and working in other regions of the world. How strongly do you recommend this to younger executives today? What is the importance of getting global experience and really living in other cultures in your career?
Charlie: When we are recruiting and we see people who have never been out of the United States, we know they are going to go to India or San Palo and see different cultures and it will smack them in the face. We are seeing universities putting people in their MBA program internationally for six months in an overseas environment, so I think as multinationals continue to expand in emerging markets, they expect their consultants will have global experience.
I think it is an absolute necessity to have at least worked if not lived in an international environment, and I would encourage people coming up through the ranks to take an international assignment. For one, it is a great experience. My wife and I just had a fantastic time living in the different environments, and both of our children were born in Saudi Arabia. My daughter went to junior high in India, and she’ll tell you she had the best time of her life there. My wife and I would say Saudi was a great place to raise our children and the sports and all the different actives they have around there were absolutely fantastic.
A lot of partners and directors at PwC come to me with that question. I had a guy who was asked to go to India and his family was really concerned, then I saw him a few months ago and he said it was fantastic. They tell me, “Charlie, everything you said was right, but it was hard to convince my family of that.” So I think it is a great opportunity both professionally and personally to do this kind of thing.
Phil: Charlie, it's been a pleasure - and am sure our readers at HfS will enjoy reading this discussion.
Charlie Aird (pictured above), (pictured above) is Global and US Practice Leader for PricewaterhouseCoopers Shared Services and Outsourcing Advisory. He’s been CEO and COO for several industry organizations, and a senior player with Big Four management consulting. He’s an internationally recognized expert on evaluating companies and markets for sourcing. You can view his bio here.