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AOL's Outsourcing Journey
March 1, 2007
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Find Out MoreTime Warner's interactive services arm AOL has recently undergone some dramatic changes. A push to drive innovation has spurred the rebirth of AOL.com as a hub for a wide range of web properties. In August 2006, AOL decided to offer its service for free to the public a decision that has had far reaching implications. Subscription fees to dial-up services, originally the company's primary source of income, have now been replaced by a growth in online advertising sales (third quarter revenues were up 46 percent in 2006 over the previous year). In response to these directional changes the company's support systems went under scrutiny and Ned Worthington, Director of Shared Services and Partner Management began exploring and testing low cost service delivery options that would meet the transformational requirements.

Worthington says: “by giving up the prime source of revenue through subscription to internet services the budget pressures became front and center. We needed to be able to scale our business to support that dramatic change and also to make it easy for Finance to support acquisitions of new businesses.”

In order for Finance to support AOL’s new business model, it needed to re-tool its financial processes and systems in a short amount of time, and in late 2004 the company migrated to a Shared Services platform. Worthington successfully integrated the Credit and Collections, and Cash Application groups but it quickly became clear that time was of the essence and after evaluating options at the company's captive center operations AOL determined that the best way to move forward was to work with a BPO provider. There were a number of factors driving this decision. “Speed was a big factor for us, ” says Worthington. “A lot of the changes in our business that we were anticipating started to accelerate. So we took a shopping trip to Bangalore and saw what other providers could bring to the table in terms of a quick ramp-up time on transition, transaction expertise, innovation and the ability to scale quickly.”

India's IT Industry

India is hugely visible on the business process outsourcing (BPO) world map.

India is boldly predicting $60 billion in IT and BPO exports by 2010.

Exports are expected to grow from $23.9 billion in 2005-06 to $31.9 billion in 2006-07.

The key enablers are low Telecom costs and the availability of an educated English speaking workforce.

The major challenge to India in 2007 is expected to come from China, whilst Canada and Eastern European countries also have strong BPO industries.

Source: India's National Association of Software and Service Companies.

Hewlett Packard emerged as the partner of choice and after completing the contracting process, Worthington led a team to establish a footprint in Bangalore, India in support of 12 distinct process areas. Today he oversees the governance and partnership management activities of the BPO relationship with HP. The reason for selecting HP in large part rested on the similarities between the two companies. HP followed a similar path to AOL in that they had already moved a lot of their financial back office processes offshore. Additionally, they had been through a lot of the Sarbanes Oxley compliance issues that AOL wanted to pay attention to. “They ate their own cookie,” says Worthington. “In the end vendor selection often comes down to who you think can execute on the sales pitch.”

In a Honeycomb web conference in January 2007, Worthington described the key elements of AOL's experience. After designing the blueprint for change, the journey started for real in 2004 with the extraction of transaction based processes from financial accounting and into a shared services platform. AOL also selected SAP as an ERP provider. The company experienced a unique set of challenges as a result of their decision to implement a new ERP system at the same time as doing changes with sourcing. Therefore bringing a provider on-board who had expertise with the ERP and an an established global footprint was a driver as well. “We felt that we were buying someone's expertise in Finance and expertise in SAP,” says Worthington.A prevailing six-sigma culture was another factor driving process renewal.

In early 2005 AOL started evaluating BPO partners. “The next step was to prepare a contract which reflected all of the organization's expectations. The significant tasks accompanying a knowledge transfer require the implementation of training plans and expertise in change management. But how do you decide what processes to move and what ones to keep? “There are as many answers to that question as there are options to pursue,” says Worthington. Ultimately AOL decided to analyse each process and break down all of the activities being done in that area. After that, it was a case of figuring out which things it would make sense to move. To make that decision Worthington suggests applying a number of filters and standards. A sample of these criteria includes; assessing the simplicity of the process, i.e. how much knowledge is stored in someone's head and how much is written down and therefore replicable, measuring the volume of transactions concerned, “service providers are loathe to consider areas with low volumes because it is tough for them to support,” and consideration of specific language requirements. In late 2005 the company launched its processes with shared services through their partner HP in Bangalore.

2006 saw AOL building on the footprint already established in Bangalore and migrating additional services to it's BPO partner. At this “realization” stage the company learnt to work within the new framework that had been established and was principally concerned with making sure that metrics were measuring the right things.

According to Worthington, AOL has seen improvements in processes, the level of documentation and efficiency since undertaking the project. By 2010 the company is hoping to realise its vision of a relationship that enables the company to focus on being a transformation center rather than a transaction center. “We are definitely making some headway,” confirms Worthington. On lessons learnt: “Don't underestimate the level of internal opposition to your deal,” he says. “Managing change and communicating early, often and with the right people is key.” Bringing on a partner forces processes to grow up and become more disciplined, he adds. A companies first BPO can be time consuming therefore having a partner who is capable of helping with some of the heavy lifting is extremely advantageous, and BPO contract negotiation expertise is essential to cutting the right deal.

Read a transcript of a questions and answers session with Ned Worthington...click here.

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