Ray Leclercq was named CFO of BT Global Services 20 months ago as part of a sweeping management shake-up. The combination of higher costs, slow delivery of cost reduction initiatives and worsening economic conditions had saddled the company with operating losses of more than £2.5 billion (US$3.8 billion) in 2008 and 2009.
BT Global Services: Turning Red Ink to Black
Today, the unlisted company, which accounts for 40% of revenues of British telecom giant BT Group, appears to have turned the corner. EBITDA in the quarter to June 30, 2010 was £130 million. “We’ll be north of that this year,” says Leclercq. He spoke to CFO Innovation’s Cesar Bacani about how the turnaround is going, the role of the finance function in business transformation and other issues. Excerpts:
What has the new management team at BT Global Services accomplished so far?
I can share with you the scale of what we have been achieving at the group level. Last year BT Group took out £1.9 billion of cost. This year, we’re planning to take £900 million out. That’s the finance team who drives that.
Did you achieve this by reducing headcount?
It’s a combination. We look at headcount not just in direct BT employees; we actually look at the outsourcers that we use as well as contractors. You’ve seen many organisations say they’ve reduced headcount by 25%, but where are the savings? What happened is they got somebody else to do [the jobs that were cut]. All of a sudden, you got these contractors who actually may be more expensive than the permanent employees.
We look at the whole thing end-to-end, so we don’t just squeeze the balloon here and it comes out there. So the first instance, we looked at taking work out, so there wasn’t that work to [be done at all]. Then where there was the work that needed to be done and the efficiency was driving spare capacity in our permanent employees, our preference was to bring the work [that was outsourced] back into BT, because we’ve got a responsibility to our employees. As a last resort, we would then only reduce the number of BT employees.
Talking for Global Services, if you look at that total end-to-end population over the last 20-24 months, we reduced that by over a third. Two years ago we had about 40,000 employees. We’re down to 29,000 people. But we’ve announced a big investment programme in Asia, so actually we’re recruiting people here. By the end of 12 months, we’re expecting to grow the [the region’s employee] population by 300 people. It’s also about rebalancing across the globe [and adding to headcount] where the growth is.
Cost reduction can bring you only so far. What’s the strategy at BT Global Services to grow the top line?
When Global Services had its problems originally, we looked at the strategy. Was the strategy of providing networked IT services to government and big multinationals a flawed strategy? What we concluded was no. It’s a massive market worth US$600 billion globally. The other thing is, if you look at the competitors and with us, nobody has got more than a single digit market share. So that signals immediately a very fragmented market and lots of opportunity.
But how do you unlock all of this value? Global Services was very geography-driven before; it was all regional. We’ve reshaped the strategy to some extent to be a lot more customer-centric. We’ve set up a new Multinationals Division, which focuses on the big global customers like a Pepsico or a Credit Suisse. They buy their services globally, but they want them to be operationally delivered locally. Let’s say they’re buying a call centre-hosted solution in the U.S., Asia and Europe. They want exactly the same service levels, exactly the same customer experience and common pricing across the place.
What we’re going to be doing is to set up global verticals. The first one on Global Banking and Financial Markets will be launched on October 1. We’re looking at Consumer Packaged Goods later in the year, and also at Global Commerce, which is a little bit of a catch all, where health sciences and resources companies will sit.
So will companies that operate only within one country or a region no longer be served by BT Global Services?
No, if a local bank for example wants to procure our services, then absolutely. But that would then be managed at the local level.
You’ve got some very big domestic banks in China. As they have aspirations to globalise, what you may well find is that today it’s managed out of Hong Kong as a domestic client, but as that customer starts to expand globally, what we would say is, to manage from Hong Kong maybe isn’t the right way. So what we’d do is lift it up one level and put it in the Global Banking and Financial Markets global vertical.
If you think about it, Deutsche Bank, Credit Suisse, HSBC, Standard Chartered, they all want to buy very similar services. They may want to configure them to tailor to their own needs, but much of the infrastructure, the professional services, things like trading systems [are already in place at BT Global Services]. Why wouldn’t you put that into a centre of excellence and provide it to everybody?
THE CFO’S ROLE
How much of this new strategy is due to the finance function?
Finance was involved as an equal voice at the table as anybody else. The idea was tabled and we discussed the merits and demerits. If you look at some of the [new] executives that we got, they’ve got experience in doing this in other organisations, where it was very successful. The finance team has been pretty instrumental in shaping the design of the organisation, the speed of which we can do it, and also the strategy. And we will continue to do that.
How do you see your role as CFO in this new environment?
I think there are four roles for the CFO to play. There’s the strategist, which is a very big part of [of the finance function] when you’re playing on the global dimension. There’s what I call the steward, which is around internal control, regulatory and those elements. There’s the operator -- I have a function that [involves running] operations in terms of transaction processing, billing, debt, that kind of thing. And then you have what I call the specialist role, doing functions like treasury and tax and the technical accounting elements. You’ve got to be competent across all of those four dimensions.
The time you spend [on each role] depends on the nature of the business, to some extent. As I said, strategy is a very big part of the role [of the BT Global CFO]. What’s happening in Asia Pacific is very different to what’s happening in Latin America, which is different to what’s happening in the U.S. or within Europe. We also have a number of different types of businesses [in the various regions]. Everybody focuses very heavily on managed services, but within Italy, for example, we offer SME services, same in Spain. In the U.K., we do business process outsourcing (BPO) for local governments, where we do all their billings and collections and pay out benefits to poor families.
Have you always been playing these four roles in your previous jobs?
I’ve been a CFO now for probably going on now for 18 years, and in all of those CFO jobs, there’s been a requirement to operate against each of those dimensions.
So you were never just a steward or a specialist.
No, because if you were looking at somebody who might be just a steward, that might be the risk manager within an organisation. Or if you’re looking at somebody that’s just a specialist, that might be your financial controller or tax expert or your treasury expert. The reality of being the CFO is that you sit across all of that. You’ve got to be a little bit of an expert in everything. I think if you find CFOs who are stronger in one [dimension] than in the others, then potentially, there may be a challenge for those businesses or they need to compensate to come with the right skill sets.
Is your head of finance here in Asia expected to possess all these skill sets?
I would suggest that he plays across all of those dimensions. That’s my expectation. He’s the regional finance director, all of my finance directors need to play across that. If you say to me, well, how much do they play? They’re probably not as much in the strategist role as I am, because we’re doing that at the group portfolio level, but they still need to be able to participate in [strategy setting]. What informs the strategy of Global Services at the group level is the quality of information that comes up from the units. It also informs the quality of the discussions that I have around that.
So I would suggest that strategy is probably lesser of a dimension for [the Asia regional finance director], and it would be steward, operator and probably to some degree specialist. But mainly the steward and the operator would be his core focus [as he supervises] controllers, tax specialists, treasury specialists.
CENTRES OF EXCELLENCE
Doesn’t BT Global Services have global shared services centres that have taken over from the regions some specialist and operations tasks, and perhaps even stewardship functions?
Increasingly, what we’re doing as you would expect within a global business is looking at and creating centres of excellence, rather than trying to replicate in each country or in each region the exact finance model, because that becomes cost ineffective.
For instance, our tax shared service operates out of the UK. We do have local specialists [in the regions], but they are within the control of the UK centre of excellence. Treasury, again that’s the same thing. Each country and region has its own banking relationships. What we said is, we’re not going to do that anymore. We’ll do a global relationship with one of the big global banks.
When I came in here 20 months ago, Global Services had been run from a finance perspective as a whole lot of independent finance teams, so the power sat in the country. If the country finance team didn’t want to do what the global CFO does, they didn’t do it. I’ve changed the model. What I’ve said is, there are no multiple finance teams; there’s no country finance team. We are a single, global finance team that works to a single global standard. If you don’t like that, then that’s a problem for you because that’s the way the business is going to work.
How is that working out? I imagine there’s been angst in the regions, as you would expect from any shake-up.
I think [the work of the finance function] is becoming easier, because we’re moving from a lot of different systems and processes and ways of working to a single common standard. When I first joined, not all of the businesses were on the same financial platform. They were on a very old version of Oracle. We’re in the process of deploying a single chart of accounts across the globe on the latest Oracle releases. We’ve just finished Latin America. By February, the whole of Asia Pacific will be on Oracle. We’re going to do Italy, Middle East and Africa in the next 12 months.
This makes a big difference because what it means is that things like accounts payable, accounts receivable, general accounting, all of those things, we can then have a common global standard process to work to and makes it a lot easier to move to shared services. Rather than moving 20 different ways of doing something, we’ll have one way of working. That means when you go to a shared service, it’s much easier to get the economies of scale, the labour arbitrage benefits.
Plus you’ll get business intelligence, analytics and all sorts of value-added knowledge. . . .
Well, first level. You can do basic variance analysis in a shared-service context, but the more sophisticated business insight needs to happen at the front end of the business. We will always have finance teams at the front end doing business intelligence and decision support, supported by what I call the manufacturing elements of it happening at the back end.
My vision is what I term an ‘automated self-service model.’ What you would expect if you were running on a standard set of processes is that the systems themselves should be able to produce a standard set of reports that don’t need the intervention of the finance team. They can go straight into the hands of the business. So it makes it quicker, more timely, in terms of getting information out to the decision makers.
Is this automated reporting already happening in the units that are on the standard chart of accounts on the latest Oracle releases?
When I was at [BT Group’s open access subsidiary] Openreach, we were further along at implementing that than I am here. That’s a process that I started when I joined [Openreach in 2007].
All businesses are facing competition on price. To be competitive, you got to have cost leadership and that means HR and finance and everybody the same. So we’re looking at ways that we can be more cost effective but also at the same time increase the level of service that we give to our internal customers. There’s no point reporting two months after the fact. Finance needs to be less of a lag indicator. We need to say to the business, ‘If things continue and we don’t make an intervention, this is the outcome that we’re going to find.’ Finance should encourage them to make more timely intervention and improve the performance of the business.
How does the self-service reporting work? It’s all automated?
Well, it will ultimately be all automated. I don't know if you know [U.S. company] Cisco, but the way it works there is that the job that you do defines the financial reporting that you get. At the end of the month, the system just sends you the reports.
The report is not processed by finance at all?
No, it goes straight up to the business manager. Now, of course, what it then relies on is that the non-finance person receiving the report is sufficiently commercially aware to understand what they’re getting and how they use it. One element here is about putting in place the capability and the process and the systems. There’s an element of education of the business that needs to go with this. We’re on that journey.
Of course, the information that comes out is only as good as the quality of information that goes in. That’s why you need to have a standard global chart of accounts, a standard definition of cost and so on.
As far as I’m concerned, finance is here to challenge the business. The role of the finance function is to continuously push the business to see if it’s stretching itself enough. Can it do better? That’s the role of the CEO as well and of many others. But I think finance has a unique insight; we get to see the whole business end-to-end. Because of the information we have, we have a unique fact base on which to push the business. Rather than just supposition or guesswork, we can actually take the emotion out of [the debates and dialogues].
Are you confident at this point that you have all the factual data and information and figures that allow finance to push the business to stretch itself?
There’s room for improvement, but we’ve got enough to make the right kind of decisions today. I want to refine it and improve [that capability]. I would expect there would be a continuous process improvement.
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