At a Glance:

• A UK- and India-based accountancy practice was experiencing poorly controlled headcount costs driven by an aggressive acquisition strategy
• The business’s offshoring model had created issues with systems, processes, integration, and reporting clarity
• Leadership, strategies, and objectives were not unified across the UK and Indian businesses
• New investment in the business was being withheld until cost and headcount issues were addressed
• EFM Associate Jon Pennells was brought in to examine the cost and operational issues to put together a comprehensive ‘get well plan’, and engage local expertise to deliver it

Background:

Jon Pennells’ ‘Big Four’ experience with SMEs in India stood him in good stead for this role, which saw him working on behalf of an investor to resolve cost and headcount issues, as a precondition for further investment.

The company’s aggressive acquisition history was accompanied by a strategy of moving work to its India-based team to optimise costs.

But with around 750 people, the Indian operation was at its highest-ever headcount level, and although it was predominantly located in one state in India, 75% of its staff were remote home-workers, many of them scattered throughout the country.

Geographically dispersed, with all the attendant difficulties surrounding communication and engagement, and with historical operational direction largely in the hands of a single entrepreneur, the business was flying blind and burning too much cash. The existing investors wanted the situation rapidly resolved before they were prepared to commit more funds.

This is the job - and the deadline - that Jon Pennells was entrusted with.

Challenge:

When Jon started to look into the financial reality of the company’s cost base, he also found multiple cultural, technical, and organisational issues. Ultimately, these all pointed to inefficiency, eroded margins, and a weakened bottom line.

Firstly, headcount had spiralled, as the Indian business had created a multi-level hierarchy to replace what had been, ostensibly, a flat junior team in the UK, and had triggered increased remuneration levels. This structure had pushed headcount costs up by over 200 % against industry benchmarks.

Software and systems were a particular challenge. To start with they were sluggish, which impacted productivity – for example operators having to switch between separate screens some 50 times a day could find each refresh taking between 15 and 40 seconds.

And at the same time, these technology shortcomings introduced process drag and duplication, too. For example, receipts that were scanned in the UK and then sent to the India team were being manually converted into a form the Indian systems could use.

These issues were compounded as outputs from accounting software such as QuickBooks and Xero which can be used to directly prepare accounts, were put back through the business’s own process – another significant internal cost!

In addition, Jon found himself up against the dual obstacles of a team that was used to taking instruction but not volunteering their professional opinion, and a reluctance to report and feedback on issues and shortcomings.

Solutions:

Jon dug deep to seek out the evidence that would tell the full story of the business’s lack of cost control, building one-to-one relationships with the team to encourage them to provide information and evidence in a safe space. From this, and further investigations, Jon devised around 20 proposals and recommendations.

The highest priority amongst these was finding a new leader for India who would view the business strategically, integrate it with the UK operation, and exploit this integration to ensure work was being done in the right place, at the right cost, with no wasteful duplication.

A staffing restructure was also high on Jon’s agenda, not only to trim unnecessary hierarchies and rationalise salary costs but to prevent the use of overqualified people in roles such as microclient engagements, for which a dedicated junior team would prove far more efficient and cost-effective.

To drive transparency around activity and servicing levels, and where profitability was coming from, Jon also recommended the use of a practice management system, whilst to unify the India and UK businesses strategically, he advised introducing a balanced scorecard system across both, linked to defined targets and key performance indicators (KPIs).

Finally, Jon also pointed out the need for improved training around mandatory provisions (such as anti-money laundering laws), to reduce the business’s exposure to risk, and the introduction of quality metrics and customer satisfaction feedback to strengthen retention and reduce attrition.

Benefits:

Jon’s recommendations, in his report to the investor, were costed and showed that even if the business adopted an India-UK staffing ratio of 2:1 – higher than what would typically be required - the proposals would deliver annual cost savings of around £1.5 million.

The report was well received, and as a result, Jon was asked to move ahead with working his network in India to identify and put in place a new local business leader.

For more information on how EFM’s experienced Finance professionals can improve the performance of your business and secure its journey to growth, get in touch today.