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© 2011 Financial Operations Networks LLC Managing Constant Change in AP Today Michelle Zacharias-Hunt AOL Wednesday, April 13, 2011 The Background…. www.TheAPNetwork.com Page 2 The Only Thing Constant at AOL is Change! THE BEGINNING 1985 QLINK ONLINE SERVICE THROUGH QUANTUM INSTANT MESSAGING LAUNCHES / QLINK RENAMED AMERICA ONLINE 1989-1991 THE MIDDLE 1995 1993 AOL.COM HOMEPAGE, FLAT RATE PRICING, AND “THE BUDDY LIST” 1998-2000 AOL BEGINS MAILING MILLIONS OF DISKS 1995 NAME CHANGES TO AOL, CONTENT AND SERVICES OFFERED FOR FREE AOL TIME WARNER MERGER AND AD.COM ACQUISITION ACQUISITIONS INCLUDE COMPUSERVE, ICQ, NETSCAPE, MOVIEFONE, AND MAPQUEST AND NOW… 2008 AOL REACHES 1M MEMBERS 2001-2004 2006 AOL BECOMES AN INDEPENDENT, PUBLICLY TRADED COMPANY OVER 80 CONTENT SITES LAUNCHED 2009 ACQUIRED HUFFINGTON POST 2010 ACQUIRED TECHCRUNCH 2011 AOL’s infrastructure continuously evolves in order to support our transforming market. www.TheAPNetwork.com Page 3 How has the company’s transformation over the past four years impacted the AP department? Business Model Shift Member Based Business Advertising Based Business Accounts Payable Mergers & Acquisitions 700% increase in micro payments (non-std) 29 acquisitions Partner Management Multiple outsourcing relationships for processing, audit, and helpdesk AP not only needs to be efficient, it needs to stay flexible to meet changes in the business www.TheAPNetwork.com Page 4 How did AOL get from point A to point B? Successful Outsourcing Streamlining Processes Well Defined Metrics Developing an Invested Culture Stabilizing the Control Environment www.TheAPNetwork.com Page 5 Where are We Today? AOL is a leading-edge web services company, with an offering of premium and niche content sites, world-class tools and platforms About 250 million people around the world rely on AOL www.TheAPNetwork.com Page 6 Of Course Change is Difficult…. • Financial systems were on an unsupported version of Axs-One • Financial processes were embedded in the accounting area • Business processes lacked documentation and scale • Budget pressures were a reality in order to fund AOL’s transforming business model • Inability for ease of acquisition integration. Finance needed to be able to support AOL’s movement towards more of an open technology platform • Cost of service was high compared to benchmarks The objective is to always ensure that the infrastructure (human, technology, and business) is ready when change happens. www.TheAPNetwork.com Page 7 AP Ingredients for Success Recipe for an efficient, responsive, scalable and controlled AP organization Key Ingredients 1. Leadership and Vision 2. Establish a Culture — — — — Customer awareness Employee development Measurements Transformation/Efficiency 3. Control Environment 4. Technology – Enabler 5. Outsourcing – Enabler www.TheAPNetwork.com Page 8 AP Resource Allocation Old Model Front Front Office = Customer Facing/Intake Back Office = Operations Back Front New Model Back Process Optimization Majority Time Addressing New Customer Requirements Formal Customer Intake Systemic Controls Integrated Systems Processing Minimal Time Addressing New Customer Requirements Limited Formal Customer Intake Manual Controls Sub-optimized Systems Customer Facing/Intake Transformation Accounting and Control Processing www.TheAPNetwork.com Page 9 Successful Outsourcing www.TheAPNetwork.com Page 10 In selecting an outsourcing solution, there are many key elements that help to arrive at a strategy. Outsourcing Objectives • Reduce costs • Speed to implement • ERP expertise • Sustain compliance and control minimize disruption to customers • Build scale for growth • Increase capability • Knowledge of business • Flexibility of managing retained workforce • Ease of start-up • Leverage existing global workforce • Move routine work to free up time for higher value work www.TheAPNetwork.com Page 11 Key Enablers of Outsourcing Success • ERP solution – robust functionality for effective outsourcing • Scanning – getting the work in a virtual environment • Workflow tools – move the work where it needs to go • Clear handoffs – provide for appropriate review and approval steps and help maintain strong control environment • Process documentation – clarify roles and responsibilities www.TheAPNetwork.com Page 12 Establishing Effective Working Relationships With Systems Support Groups Accurate Network Map Effective Backup Plans (BCP) Clear Escalation Paths www.TheAPNetwork.com Early IT Planning Participation Effective Systems Support Issue Resolution SLA’s Latency Avoidance Solution Documented Roles and Responsibilities Documented Issue Intake Process Page 13 Lessons Learned • Bringing on an outsource partner forces your processes to grow up • Process owners need to know they have “skin in the game” for success • Don’t underestimate the level of internal opposition to your deal • Performing the first BPO at a company can be time consuming (Legal, HR, IT & Corp Communications, SOX planning and compliance) • Have your partner prepare for a staff augmentation role • Resources are less pliable than you think – difficulty dealing with the ambiguity • Broken processes can be targeted for offshore (you get reengineering and labor arbitrage for one price) • BPO contract negotiation expertise is essential to cutting the right deal • AOL’s first BPO deal presented significant challenges in the IT area and represented some of the greatest risks to the success of our project. Engage IT resources early and communicate frequently www.TheAPNetwork.com Page 14 Some Things to Plan For in IT Area Plan for dedicated IT project resources and engage them early to discuss and plan for all relevant IT areas. Some key things to cover include: • • • • • • • • Network connectivity and support Desktop application support Application performance (citrix etc.) Printing infrastructure Security/authentication User access management/onboarding SLA’s and escalation procedures Business continuity plans Prepare plans for transition phase and post transition support. If plans are not executed effectively, savings realized and operational efficiency can be dramatically impacted. www.TheAPNetwork.com Page 15 Streamlining Processes www.TheAPNetwork.com Page 16 Process Mapping Process Mapping is the activity of representing a process that illustrates: • What activities are completed by whom in what sequence • Hand-offs between departments or individuals • Operational boundaries, also called swim lanes • Clear starting and stopping points Why map a process? • Diagnostics: determine the cause of a problem or condition • Improvement: As-Is Should-Be Could-Be • Business Requirement: Supplier, regulator or industry standard (i.e., ISO 9001) • Education/training www.TheAPNetwork.com Page 17 General Process Improvement Steps • Gather information ― ― Existing “As Is” documentation and actions Interviews and questionnaires, structured interviews • Isolate deficiencies in the current process • Re-work the process to maximize improvement opportunities • Identify necessary checks and balances to keep the process in control www.TheAPNetwork.com Page 18 Well Defined Metrics www.TheAPNetwork.com Page 19 Key Elements of AOL AP Metrics Program • Analysis & remediation plan for yellow/red metrics AP impact Root cause analysis Remediation plan Follow-up until green FEB MAR APR MAY JUN JUL # of Metrics Process Sub-process AUG JAN FEB MAR APR MAY JUN 4 1.75 2.00 2.00 2.00 2.00 2.00 1.75 2.00 2.01 PTP Contract/Master Data 3 0.3 1.8 1.8 2.3 2.3 2.3 2.3 2.3 2 3.00 3.00 3.00 3.00 3.00 3.00 3.00 1.50 2.02 PTP Req-PO 1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Invoice-Payment 1 -2.00 2.00 1.00 2.00 2.00 2.03 PTP Invoice-Payment 4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.04 PTP T&E 2 2.50 2.50 2.50 2.50 2.50 2.50 -0.50 1.75 2.04 PTP T&E 3 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 1.05 PTP Partner Settlement 1 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.05 PTP Partner Settlement 1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 -0.13 -0.19 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 1.67 1.67 1.67 1.33 1.67 1.67 2.13 RTR GRIR 0 -2.00 -2.00 2.00 2.00 2.00 2.00 2.14 RTR Fixed Assets 1 2.15 SUP Internal Control Desk PTP Sourcing 8 OTC Credit 1 2.00 1.09 OTC -2.00 -2.00 Ad Billing 1 1.10 OTC Collection 2 1.11 OTC Cash Application 1.12 RTR Cash Reconciliation 1 0.00 2.00 2.00 2.00 2.00 2.00 1.13 RTR GRIR 3 1.14 RTR Fixed Assets 1 -2.00 2.00 1.15 SUP Internal Control Desk 0 1.16 SUP Treasury Services 2 1.17 SUP Help Desk 0 1.18 SUP Leasing 1 3.00 3.00 30 1.41 2.00 Process Sub-process 2.00 # of Metrics 2.00 2.00 1.56 1.56 2.07 PTP Sourcing 2 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.00 2.00 2.00 2.00 2.08 OTC Credit 2 2.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.00 2.00 2.00 2.00 2.09 OTC Ad Billing 1 2.00 2.00 2.00 2.00 -2.00 2.00 2.00 2.00 CONTROL 1.07 1.08 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.10 OTC Collection 0 2.11 OTC Cash Application 2 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.12 RTR Cash Reconciliation 6 2.2 2.1 1.3 2.3 2.1 1.0 2.3 2.3 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 9 2.3 2.3 1.7 2.3 2.3 2.3 1.1 1.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.00 2.00 2.00 2.00 2.00 2.16 SUP Treasury Services 2 2.00 2.00 2.00 2.00 2.00 2.17 SUP Help Desk 0 3.00 3.00 3.00 3.00 3.00 3.00 2.18 SUP Leasing 2 3.0 3.0 1.91 1.44 1.40 2.07 1.76 1.83 Total Control Metrics - Overall Rating 39 2.14 2.29 2.04 Process Sub-process # of Metrics 2.00 JAN FEB MAY JUN JUL AUG 3.01 PTP Contract-Master Data 5 1.0 2.4 2.4 2.4 2.4 2.4 2.4 2.4 4.0 3.02 MAR APR PTP Req-PO 2 1.3 2.5 2.5 2.0 2.5 2.0 2.5 2.5 4.1 2.37 2.33 2.14 2.08 2.16 JAN FEB MAR APR MAY JUN JUL AUG SSC Performance 4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 SSC Training 2 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 3.03 PTP Invoice-Payment 5 2.4 2.4 2.4 2.4 2.2 2.4 2.4 1.6 4.2 SSC Education 2 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 3.05 PTP Partner Settlement 5 2.1 2.4 2.4 2.4 2.4 2.4 2.1 1.2 4.4 SSC Involvement 2 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 3.06 PTP PCard 4 2.1 2.4 2.4 1.0 2.4 2.4 2.1 2.4 4.5 SSC Satisfaction 2 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 4.6 SSC Inclusion 2 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 16 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 3.07 PTP Sourcing 3 0.3 2.0 2.0 2.0 2.0 3.08 OTC Credit 1 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.09 OTC Ad Billing 2 1.5 1.5 1.5 2.3 3.0 2.3 2.3 0.0 3.10 OTC Collection 10 2.1 0.6 1.2 0.8 0.3 0.2 0.4 1.1 3.11 OTC Cash Application 5 0.6 1.2 1.2 1.2 1.2 1.2 1.2 1.2 3.12 RTR Cash Reconciliation 1 -3.0 -3.0 -3.0 1.5 1.5 3.0 3.0 3.0 8 3.13 RTR GRIR 3.14 RTR Fixed Assets 3.16 SUP Treasury Services 3.18 SUP Leasing 1.5 1 0.0 2 Operational Excellence - Overall Rating 2.5 1.9 0.0 2.5 1.8 0.0 2.5 1.9 1.6 0.0 0.0 2.5 2.5 1.8 1.8 0.0 0.0 2.5 2.5 1.8 -3.0 2.5 4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 58 1.67 1.67 1.75 1.67 1.76 1.77 1.77 1.61 SSC Metrics 2008 Human Capital Metrics - Overall Rating ACCOUNTS PAYABLE - INVOICE PAYMENT Dollars in Thousands ● ● JUL AUG Contract/Master Data Req-PO PTP Ref ― Green: Meets expectations ― Yellow: Needs improvement ― Red: Needs significant improvement JAN PTP PTP Total Customer Metrics - Overall Rating • Monthly performance against targets ― ― ― ― # of Metrics Process Sub-process 1.03 HUMAN CAPITAL Customer (30) Control (39) Operational Excellence (58) Human Capital (16) OPERATIONAL EXCELLENCE — — — — High Impact • Balanced Scorecard – 143 Total Metrics CUSTOMER Ref 1.01 1.02 Seq # IP10 IP11 IP1 IP4 IP5 IP8 IP9 IP12 IP13 IP17 IP18 SORT BY SEQ NUMBER Metric Description SORT HIGH IMPACT % of invoices processed within 3 business days % of invoices processed accurately Discounts taken and missed (% of discounts taken) % of invoices paid by PO vs Disbursement Request ($) %of invoices paid by PO vs Disb Request (#) Average invoices processed per processor (monthly) % of wire documents settled in SAP within 48 hours % of month end balance more than 60 days past due Variable cost per invoice processed % inv. $ paid PO vs. Disp. Request (Limited) % inv. # paid PO vs. Disp. Request (Limited) Actual Performance BSC Expected Minimum JAN FEB MAR APR MAY JUN JUL AUG OPEX OPEX CUST CONT CONT OPEX OPEX OPEX OPEX CONT CONT 98.0% 90.0% 95.0% 90.0% 55.0% 45.0% 20.0% 17.0% 60.0% 50.0% 600 500 95.0% 90.0% 10.0% 15.0% FUTURE FUTURE 80.0% 70.0% 80.0% 70.0% 100.0% 99.2% 15.8% 70.8% 76.5% 699 100.0% 0.4% NM 84.2% 90.0% 100.0% 99.2% 81.9% 63.8% 77.9% 652 99.5% -1.1% NM 91.2% 88.7% 100.0% 98.9% 54.7% 58.5% 79.6% 636 98.7% 4.0% NM 81.6% 89.0% 100.0% 99.2% 67.8% 57.3% 77.3% 708 100.0% 1.7% NM 85.7% 88.1% 100.0% 99.2% 56.4% 61.4% 74.7% 576 100.0% 1.1% NM 82.2% 86.4% 100.0% 99.1% NM 71.3% 75.2% 602 100.0% 2.4% NM 84.6% 86.5% 100.0% 99.6% NM 66.3% 68.2% 666 100.0% 1.6% NM 92.7% 89.3% 100.0% 98.5% NM 56.0% 69.1% 602 87.3% 3.6% NM 86.0% 84.3% 1.60 2.00 1.90 2.00 1.90 2.00 2.00 1.56 1.80 2.20 2.10 2.20 2.10 2.22 2.22 1.78 Standard Average Monthly Rating Weighted Average Rating SSC Metric Underperformance Analysis Balanced Scorecard Category Process Sub-Process Customer PTP Sourcing Month: 0808 Sequence Number Metric Description SO13 Total RFX Events Completed (RFI, RFP, Auction, etc.) Total Electronic+Manual Description of Deficiency Only completed 2 RFPs this month vs. old target of 4; 2 still outstanding due to customer timelines. Date of this form: 081208 Expected 4 Minimum 3 1 0 SOURCE0801 2 4 3 AUG JUL JUN MAY APR MAR FEB JAN 3 2 1 Impact on SSC Performance Potential cost to customer budgets: $2M RFP policy threshold; assume 10% RFP savings = $150-200K per missed event Root Cause No root cause – based on RFP actuals that are determined in conjunction with the business. Remediation Plan Completion Date Identify actual RFPs planned for rest of year to ensure we hit target; task category leads with submitting planned RFP 12/31/08 information. Note: May need to adjust metric since metric revised to 25 for the year (so target would be 2-3 per month vs. 3-4 there now). Remediation Plan Results Month 1 Still tracking RED; assuming revised goal of 25, this put us 3 down which is a potential $450K-$600K impact on cost savings; only several RFPs planned for rest of year due to declining customer large dollar purchases. Sourcing VP to meet with SVP on refining goal in light of cost control initiatives and reduction in force affecting Sourcing. Month 2 Date 09/17/08 Month 3 • Monthly attestation meetings/Quarterly Review ― Sign-off on accuracy & remediation plan ― Monthly meeting by functional group ― Quarterly meeting combined all groups www.TheAPNetwork.com Page 20 Measurement Drives Performance Challenges Critical Success Factors • Access to data • Efficient data gathering and compilation process • Multiple formats • Determining what to measure • Setting objective performance targets • Manual nature of data compilation • Clear and concise reporting • Shifting cultural mindset from transactions to metric analysis • Ownership of data by “miners” • Effective root cause analysis • Ownership of results & remediation plans by process owners • Leadership attestation • Rigor & discipline in the program • Continuing evaluation of measurements to ensure relevance • Engagement of team members and belief in the benefits of the program www.TheAPNetwork.com Page 21 Stable Control Environment www.TheAPNetwork.com Page 22 AP Control Environment Process Audits K SOX Tr a BCP /SA S ols ontr g rin ito on ey C M ol in in g tr on 70 C ICD AP om tio n C oc um n tio Yo un g D a ic un www.TheAPNetwork.com & en ta m Er ns t t In r e rn l na r e t di u A Control and Compliance a W e are m embedded in the minds Ti of our Teams Page 23 Key Elements • Fear of the legislation — Consider all processes in key control designation — Train personnel early and often • Understand your controls — — — — Key vs. non-key What risk is mitigated by the control What are the implications to other business units Each business unit owns their own key controls • Flexible yet compliant — Adapt to changing business environment while remaining compliant — Don’t be afraid to ask why (Employee Empowerment) • Update as necessary — Obtain support from the audit team, but don’t be afraid to update your control structure • Monitor, test, review — No matter how confident you are, something could still go wrong www.TheAPNetwork.com Page 24 Developing an Invested Culture www.TheAPNetwork.com Page 25 It became evident that in the midst of constant change at AOL, one of the key components to maintaining the unity, effectiveness and morale of the AP team is its dedication to continuing a strong sense of CULTURE within the organization. AP anticipated the changing needs of AOL, and began to transform its team into flexible & adaptable utility players. A key component of this workforce transformation was the development of a strong Cultural Program. www.TheAPNetwork.com Page 26 The AP Culture is composed of 3 core elements: Communication Education & Transformation Team Building www.TheAPNetwork.com Page 27 AP Top 10 Culture Initiatives • Customer Connection — Center-wide Customer Service Training — Power User Sessions, Customer Related Operation Service Level Agreements Communication (internally & externally) • Skip Level Lunches (monthly), All Hands (quarterly) • “Pipeline” & “Note from Controller” (bi-monthly) • Lunch and Learn (quarterly) • Transformation Board • Operational Themes — — — — — 2006: Know Your Numbers 2007: End-to-End Process Awareness 2008: Tell the Story 2009: Happy Hour is Minutes Away 2010: Go for the Gold • AOLU People Development • Rewards & Recognition and Stars Program • Leadership Meetings (quarterly) Education & Transformation (quarterly) — 2010 Leadership Team — Director Council • Fun Team Events (monthly) — American Idol Pool — Chili Cook Off and Paper Football Tournament — Family Feud www.TheAPNetwork.com Team Building Page 28 Training www.TheAPNetwork.com Page 29 Wiki www.TheAPNetwork.com Page 30 Customer Service Over the past few years, AP has launched a series of formalized Customer Service training classes. Each member of the team receives 40 hours of Customer Service training. AP continues to underscore the value and necessity of strong customer service with the development of: • Formalized Customer SLAs • Formalized AP Help Desk • Monthly Power User Calls • Monthly Customer Surveys • ESD: Executive Service Desk • Annual SSC Customer Service Day www.TheAPNetwork.com Page 31 AP Pipeline The AP Pipeline is a Center Newsletter published approximately every 2 months. The newsletter encompasses key AP events, information, announcements & team fun facts. The newsletter is intended to keep the AP Community informed and connected. www.TheAPNetwork.com Page 32 Controller’s Org Awareness Challenge How much do you already know about the Controller’s Organization and AOL? How much can you learn in the next three months? Enough to earn you the most points in the 2010 Awareness Challenge? The Awareness Challenge will take place during the next 3 months. This Challenge will culminate with a live Question Tournament. The winner (the person with the most points) will walk away with the highest honor ~ being named the Awareness Guru! Weekly Awareness Challenge Themes: • Guess Who? • Fun Team • Metrics • Website • Process Areas • General & AOL First Look • AOL Awareness • AOL ‘Sites’ Program Highlights: 1. Well over half the number of people within the Center participated in the Awareness Challenge. 2. Over half of that population participated in 3 or more Challenges. 3. The themes of the Challenges encompassed our initial 3-pronged goal of Individual, SSC and AOL awareness. www.TheAPNetwork.com Page 33 Rewards & Recognition • Einstein Award – Process improvement • 3-Star Award – Outstanding customer service • “Protect This House” Award – Contributing to the enhancement of AOL's control environment • Offensive Player of the Game Award – Dedication and excellence • Big Cookie – Demonstrated teamwork • Nominations can be submitted by all AP Employees. • Nominations are reviewed, and the award winners are announced during each All Hands meeting. • All Nomination forms have the AOL Personal Best Principles as it relates to each award category printed on the back of the nomination form. www.TheAPNetwork.com Page 34 AP Stars Program AP also established the Stars Program. The Program invites all members of the team to quickly and publicly recognize their colleagues for doing a great job. The Stars Program is structured as follows: • A Star can be posted by anyone within the Center and is available for all to read. • Each week, the board is cleared. • The Stars are posted outside each recipient’s workspace. • The names of the receivers are also posted on a large Star highlighting the week’s Stars. • The large Star is posted along the wall of the hallway ~ fondly named: The Boulevard of Stars During the first week’s Program launch, over 30 stars were posted. Since the program was launched, there have been over 300 stars posted! www.TheAPNetwork.com Page 35 Team Building: Fun Team • Annual Chili Cook-off & Paper Football Tournament • American Idol Pool • Pet Look-a-like Contest • Family Feud • Wii Challenge • Halloween Pod Decorating Contest • Egg Hunt • Volunteering (Holiday Coalition, Servathon, Earth Day) • Desktop Giveaways • Secret Santa & Re-gift Event • Fall Festival • Cinco de Mayo • Fun Team Bulletin Board www.TheAPNetwork.com Page 36 Improvements We Have Seen Area Before After System AXSone SAP People 40% Annual Attrition <10% Annual Transition Process Manual, clunky, resource intensive Scalable Documentation Limited Complete with desktop procedures Metrics Limited or not available Balanced scorecards Efficiency Not measured Savings realized Transformation Skills limited to a select few Skills spread throughout team in U.S. and at Partner Our partnership enables us to focus on being a Transformation center not a Transaction center www.TheAPNetwork.com Page 37 © 2011 Financial Operations Networks LLC Thank You!