Picture the scene... the first time I met Ron Walker was back in about 2005 at a Hawaiian Luau in Southern California (I think it was meant to be an EquaTerra "strategy" offsite). From my recollection, the guy was clearly hungover, looked like he'd frequented one-too-many MickeyD drive-thrus as he schlapped around the States doing sales calls, and was sporting a Bermuda shirt and shorts to boot.
Seven years later, I find myself at some conference in Florida, when this suave, well-shaven, slimline gentleman approached me donning a sports jacket with brass-buttons and a consultant's grin on his face. Now there's one transformation the outsourcing business can be proud of: Ron Walker as a Big-4 Consulting Partner.
Yes indeed - Ron Walker, one of the original EquaTerra founding executives has lived the sourcing dream... from start up advisors and providers right through to a global management consultancy. So we thought it high-time we caught up with Ron to talk about his colorful career and how the EquaTerra/KPMG merger was faring over a year on... and how different the sourcing world is looking today compared to those crazy days of the outsourcing boom.
Phil Fersht: Ron - you’ve been around the sourcing industry for quite sometime now. Maybe you could get everybody a little bit of insight into your background and how you got into this industry and a bit about your early career.
Ron Walker: Hey Phil - I actually started my career in the aerospace industry and was fortunate enough to work in the office of the president, where we did some initial shared services and outsourcing work. I then moved over to Arthur Anderson where I worked in the business consulting group and had a successful run working on both the consulting side and the outsourcing piece. I helped build the shared service centre that Arthur Anderson was setting up for General Motors, which was one of the largest finance outsourcing opportunities at the time. As part of that process, I made several key contacts and had the opportunity to ‘found’ the initial finance and accounting pure-play start up called LeapSource. I was part of that initial launch, until we transitioned it over and that didn’t quite go as successfully as we had quite hoped – it was during the Exult stage on the HR side.
After Arthur Anderson, I went to (order-to-cash provider) Creditek when the company was being openly courted by Genpact. I worked with the folks from TPI and ultimately connected with my former partner Mark Toon (who was at TPI at the time) and helped found EquaTerra in 2003. So, I’ve been part of EquaTerra from the very beginning. I think I was officially employee number 6 in the line up there. Most of the roles were developing and I enjoyed multiple roles and activities during the EquaTerra experience. Ultimately, when EquaTerra became a part of KPMG, I kind of went full circle… now I’m running the F&A practice within the KPMG shared services and outsourcing advisory space.
Phil: Going back to those heady days when EquaTerra was founded, how would you describe the industry today compared to what it was like then?
Ron: When we founded EquaTerra, at the time outsourcing was definitely becoming the tool of preference for many the executives to help quickly and easily wring out costs in the organization. The challenge was that most of the business process outsourcing that was done at that time was really driven from an IT mentality, and people weren’t really taken into consideration the complexity of business processes. EquaTerra was actually founded as both a shared service and outsourcing advisory firm but because of the business trends at that time, outsourcing advisory was the predominant work that we did.
A lot of companies weren’t capable of understanding how to do a contract with a service provider on the business process side versus the IT side, which was much more mature and easier to measure as far as some of the service levels are concerned. We went to work creating governance models and service levels and really pioneered a lot of the thinking that is taking place today. What I’m seeing today, now we’re 8-10 years further on, is that shared services models are swinging back into fashion. Businesses are looking more at a blended model of how they are delivering services and - in the back office particularly - they are looking at shared services and process improvements, technology platforms and some specific outsourcing – which isn’t only centered on driving out costs. It’s come full circle -particularly when you look at what happened during the last financial crisis: A lot of companies quickly went offshore or outsourced and didn’t do it quite the right way because they were trying to gain cost benefits – and their service delivery models and their quality of service have suffered since. I’d say most of the activity we’re seeing in the marketplace right now is related to fixing some of those service delivery quality issues that they have been experiencing over the last few years because they were really focused on cost versus quality.
Phil: Back in the day, we all really thought everything was going towards an outsource model, didn’t we?
Ron: Yeah, we really did. We were all looking at (basically) leveraging the global scale, capabilities and the platforms that the service providers were either implementing, or claiming that they were going to implement, to drive the future. That was what we really thought was going to take place. It just never quite took off. It certainly has a place and it’s quite effective in a lot of situations, but we haven’t seen the growth that we thought we would see – at least early on.
Phil: So what changed? Why did we move from the ‘everything should move to outsourcing’ to this blended approach we have today? We just completed a massive research study, we spoke to nearly 2000 finance professionals and only 10% of them felt that a BPO model was predominant for them, while 50% leaned towards shared services as their predominant model, with BPO being viewed as more of an augmenting capability for them.
Ron: If you go all the way back to why outsourcing was so attractive… we were in such a growth mode and companies growing hand over fist and just trying to keep up with demand and the gogo years of the Internet bubble. Outsourcing was the predominant way of getting folks in and the growth covered a lot of mistakes. Then many organizations went off and did just that, and they started scrutinizing their service delivery models and becoming less naïve - they started understanding that the service provider, although doing a good job for the most part, had their flaws and issues as well. It just didn’t quite work out for everyone, and we had several failures, which made other organizations a little bit wary as to what they were going to do going forward.
So they (buyers) started getting more intelligent, and in this day and age of information sharing is the ability of collaborating with colleagues and advisors and simply going to classes and looking up stuff on the Internet. They became a lot more knowledgeable about what the right things were to do. The promise of BPO never really delivered the full cost benefits and they certainly had their delivery challenges… and then they started looking at their own service delivery models and abilities to change. They did see things, the technology started to become cheaper, such as forms of cloud operating or software operating platforms that they could move to, and it became easier to just look at other options which hadn’t been available in the past. Where the outsourcing model had been attractive in the past it didn’t quite deliver, so companies started looking at options they could do themselves - or in pieces.
Phil: Do you think it is the same for IT as well or do you think the IT space has gone down to a much more aggressive model towards outsourcing?
Ron: Both are still growing, it’s not as if they are going away – they will still be a predominant option for many companies. I think IT has a larger implementation base than business processes, and it is more mature and easier to operate, particularly when you look at infrastructure. However, it’s still going to be a long time before companies reach their IT nirvana - especially with the new opportunities presented by the cloud. They still have infrastructure support requirements and it is a relatively inexpensive option to go to an outsourcing provider. They’ve got they’ve got scale, capabilities and they’re a lot more able to measure the success of that versus the business processes, where it’s less tangible to define what success looks like. I think ITO will continue to be a predominant part of options and it provides significant cost advantage just because of the large scale, operability and the way service providers are able to offer their services.
Phil: Do you think the BPO space is ever going to get to the scale of the IT space or do you think it is too complex in nature at this point?
Ron: I don’t know. I know in several industries we’re talking about the business process platforms becoming more predominant. If you look at some of the financial services, health care areas that will be an option. It’s too early to tell whether it will be larger or not. As some software providers start to offer different solutions, I think that organizations are going to look at that as solutions rather than these BPO (business) platforms – it’s simply a lot cheaper to implement a piece of software to improve a process, than to try and change the whole process and outsource the processing at the same time.
Phil: Do you think the key is really labour arbitrage? Let’s be honest, it worked in IT because you are literally subbing out specific onshore skills with the same skill offshore minus half the cost. It’s just harder to do that with processes that aren’t so cut and dried.
Ron: You can’t underestimate labour arbitrage but that’s a one trick pony. You get the labour arbitrage – it’s a one-time shot. This is where many organizations are challenged. They are able to take advantage of that labour arbitrage lets say up to 70 or 80% if they were just comparing labour, but where they fail a lot of the time, is to do the proper planning and put in the proper procedures, and that starts to add cost… and then you do loose efficiencies by putting in either offshore or offsite. That labour arbitrage begins to diminish over time. You can’t underestimate it because that’s an area where you can hide a lot of mistakes because you can get such a large cost-savings benefit from something initially. What we’re finding, is once you’ve done that, it is extremely hard to improve your processes or transform processes because service providers, or even your own captive shared service centers, are incented on maintaining their own FTE base, regardless of what your contract says. They measure their success on how many FTEs they have doing the process.
Some service providers are different than others, but what I’ve just described is the mentality of the majority of them. This kind of labor arbitrage makes it very difficult to make business process improvements and add software components that can further streamline process and eliminate unnecessary FTE costs. Some of the highest activity we’re seeing with our clients (at KPMG) is that as they are reservicing their entire service delivery model – pulling stuff back onshore or pulling stuff back inhouse, because they simply can’t get the service providers to cooperate with them on a rational basis to put in new software platforms or to eliminate positions entirely.
Phil: So now you’ve moved into a management-consulting environment. Are you starting to see some of these issues differently than you did before?
Ron: Yes we are. Moving into KPMG and seeing the benefits of a much broader consulting organization, with much more diversified skillsets than we had at EquaTerra, we are seeing a much broader picture of what the options are for clients today. I don’t think that’s just the KPMG effect for us, I think that is truly where the market has been moving.
Phil: What have you heard from clients (particularly the larger ones) that they have too much dependence on offshore, and need to change the model. Is that something you’re seeing?
Ron: Balance is one of the discussions but its really about a value for services decision. Particularly the large organizations, a lot of them put a lot overseas to reduce costs and they just didn’t do it properly so their service delivery model is not as successful as they had hoped… so they are relooking at that and bring it back onshore. Bringing it back onshore is a lot cheaper now than it was, say, 5 years ago. Our onshore rates and ability to deliver services has become more effective these days, and then when you look at critical operating models, it just makes sense to keep some folks closer than others. And the other thing that we learned through our financial service clients is they had a hard time in rationalizing their own recruitment model and subsequent ability to train and retain staff so they can promote them through the ranks. So when they put so much offshore, they lose some of that ability.
Phil: Just to talk a bit about your experience, EquaTerra was such a heartbeat of the business during the last decade and externally the perception has been that it’s been embedded pretty successfully into the KPMG organization. But there was a very distinct culture in EquaTerra that had been developed over the years. Do you feel that has been maintained well?
Ron: It is different, there’s no denying that, but let’s just start with some of our numbers. We had a very highly experienced team at EQ (20+ years on average) and what we did expect, as we moved into KPMG, was a different culture …but I think it was the right time.
I think most of our folks have adapted and were looking for a change and many of our experienced senior people were looking for a career reinvigoration by sharing their experiences within the KPMG model. They are able to work within KPMG and leverage their knowledge and resources to younger folks and help them along with their careers. It’s been more positive than I ever expected and an easier fit than I expected. That’s not to say there are not challenges, there always are. KPMG is much more conservative than EquaTerra ever was and they have a lot more processes and policies to follow… and we weren’t accustomed to that as a startup. That has probably slowed some of our actions down but, frankly, some of that had to be done. It will probably take another 6-12 months to really shuffle everything out through the process.
I’ll ask you, you’ve been integrating with us on a frequent basis… have you seen us lose some of our EquaTerra culture through the businesses you’ve been talking to?
Phil: I have definitely seen some maturity in some of the EquaTerra folks that I bump into. For example, there was a large gathering of (former) EquaTerra people recently in Florida and it really hit home to me how the group had been kept together. The feeling I came away with was they had retained much of that spirit and culture and were settling in well into a bigger, more mature organization and were gearing up very much to increase market share in the industry. And a lot of the former talent that had actually left the company had come back.
Ron: Right! I’d say that some of the KPMG leadership knew that there was an enthusiasm within our organization and a love of the work that we do and platform we have. Today, the clients we can now interact with has really reinvigorated some of the folks. I think we’ve done a great job of just looking at the current industry opportunity and how KMPG has provided us new pathways to keep our career fresh.
Phil: Ron, I wanted to talk a little bit about the future and this global business services framework – I know KPMG has been very hot on this topic. We just completed this study and coming out of the results, one of the things that really hit home to us was the increased recognition from finance leaders of the capabilities that providers brought to them - whether they operate shared services or outsourcing. What gets us scratching our heads is that this means service providers need to start to sell to shared services organizations more effectively, which means there needs to be a change in how this stuff (outsourcing) is actually talked about and positioned within an organization. At the same time I think clients have to understand more about how service providers operate in order to get more out of them. What is your take on this? Where do you really see this moving particularly from a finance perspective?
Ron: I think the challenge is that a lot of times companies don’t know how to get that best bang for their buck out of the service providers that they’re engaging with, which is why we see the dichotomy there. The other aspect of it that I still think is always the stopping point is technology. When you look at where you get true benefit: the people, capabilities and knowledge – that’s moveable but the technology is such a large component. Within finance, you’re pretty much stuck on the original ERP that the company has because its usually too expensive to replace or roll out, so service providers are either forced to utilize the legacy system of a company or if they want to go through a new implementation, its typically very expensive. What might change on that is NetSuite or Workday finance that is going to have the ability to make that a lot cheaper and offer a potential platform service for the service providers. In the end, I think it is an issues for every organization… although they say they want to do it, it is very difficult and challenging to try and integrate, whether it is a service provider or a new technology on a cost-effective basis, unless they are fully committed. There are easy things: for example, you can outsource T&E, AP, AR etc, but when it comes back to that legacy ERP system, until there is an option for fixing that, I don’t see a wholesale switch out.
Phil: Finally, when you look back at your career, would you have done anything differently?
Ron: Probably everything, but I really enjoyed the journey so I don’t know. I have really enjoyed the career and the progression between Arthur Anderson and EquaTerra. Frankly, the first few years of my EquaTerra experience had been the most satisfying of my entire professional career but I’m having the same kind of fun and interest and professional growth within KPMG, so I wouldn’t have predicted this path, but I probably would have made it a little less tenuous in some cases (looking at some of the start ups I had done) but, overall, it has been a spectacular experience and I probably got 10x number of years of experience for my age just because of the things we’ve been able to do.
Phil: One final final question. If you were given 1 billion dollars tomorrow what’s the first thing you would do?
Ron: Probably a long vacation with my family because we’ve been working really hard for the last year or so. I need to think about what I would do with the rest of it.
Phil: Ron Walker, thanks for the time today – a frank and rewarding conversation I know many of our readers will enjoy!