LOW-FAT DAIRY PRODUCT
Food retailer Dairy Farm aims to turn its finance function into a money-maker.
By Steven Crane

In the opinion of Francis Law, retailing in general - and the food retailing sector in particular - is less innovative than any other business. Why? According to Law, who worked for 16 years at retailing and wholesaling group Dairy Farm, selling products that are meant to be taken orally makes food retailers a lot less inclined to take any sort of risks. That safety-first, conservative approach, Law adds, tends to pervade the entire corporate culture of food retailers. "In the sense of business initiatives," the former finance director at supermarket chain Well-come says, "retailing is always the last."

Not anymore. In an intriguing move in April, management at Hong Kong-based Dairy Farm, which includes retailers Wellcome, Mannings, and 7-Eleven, dramatically reengineered the company's entire finance and accounting functions. Law, along with 200 accounting and finance employees from the company's subsidiaries, were moved to OneResource Group, a joint venture with accountancy Ernst & Young. In essence, Dairy Farm outsourced the group's finance function - to itself.

Even more interesting, Dairy Farm intends to eventually hire out the services of OneResource to other companies. Says Andrew Shepherd, Dairy Farm's former North Asia finance director and now chief executive of the new company: "The whole point is to change the finance function from a cost center to a profit center by turning it into a business which sells a service to customers."

Condensed Milk

The idea for OneResource began to take shape in 1998. At the time, Dairy Farm had just embarked on an ambitious restructuring plan. The goal: to transform Dairy Farm from a retail holding company to a decentralized retail operating company. In the space of a year, management sold off Dairy Farm's European operations, closed down unprofitable outlets in Taiwan, opened 100 new stores in Hong Kong and Australia, established an in-house food processing center and acquired 32 percent of Indonesia's Hero supermarket chain. In addition, Dairy Farm restructured basic business procedures, including category management, improvement of the supply chain, and reorganization of the management structure.

The problem, Shepherd says, was that the finance function simply couldn't match the pace of change within Dairy Farm as a whole. "We just didn't have three or four years to consolidate the systems and staff," he concedes. "What I was looking for was a creative solution in order to arrive at the goalpost at the same time as the rest of the business."

Initially, Shepherd fixed on more modest goals. Indeed, he admits his first target was simply to consolidate the finance departments at the various Dairy Farm companies into a shared service center. By eliminating three sets of accounting, administration and financial operations, Shepherd believed Dairy Farm could generate huge savings. At the same time, a combined finance function would simplify the implementation of supply-chain initiatives. In addition, Shepherd says the shared service center would enable the company to leverage the negotiating strength of the 700 Hong Kong-based stores. "The benefits were so great," says Shepherd, "that the speed and certainty of execution was essential."

The biggest problem was finding a consulting firm that could get the job done. In Shepherd's experience, engaging a consultancy only works about half the time. When projects fail, says Shepherd, it's usually because the consultants aren't attuned to the business results. "Their motivation," he says, "is to stay on as long as possible to earn higher fees. When all you see is fees coming in you start to wonder what the heck it's all about."

Ernst & Young's Bill Frech, now chief operating officer at OneResource, knows all about the typical pitfalls of the client/consultant relationship. "Because we're partners [with OneResource] and have been involved from the implementation stage," Frech notes, "we can avoid what consultants call fee fatigue - where clients are economically exhausted before the end of the project." For Frech, signing on with OneResource also means he has a real stake in the outcome of a project - instead of being a mere advisor. Frech adds that the partnership model at OneResource differs from traditional front-loaded arrangements, which typically offer big margins and little risk. "With a project like OneResource, where each partner has invested equally," he says, "the margin is lower and the risk is bigger." But, he quickly adds, "the potential for returns is much higher."

Wellcome Mat?

So far, those returns have been modest. But by rationalizing processes and providing a better quality accounting service to Dairy Farm - and at a lower cost - Shepherd claims OneResource has already proved its worth. In a traditional shared service project set up with a consulting firm, he notes, a company may save a few dollars along the way. But without customer focus, systems improvements won't be maintained and any savings will be squandered. "We've made a leap in terms of efficiency in the finance function and a quantum leap in terms of cost," says Shepherd. "We've accomplished in a matter of months, what, in a classical consulting approach, would have taken two or three years - and cost millions."

Tom Reilly agrees. A former Ernst & Young consultant and current director of accounting services at OneResource, Reilly says the joint venture approach at OneResource has created a true stand-alone business. That in turn, helps the company save time and money. Consultants, explains Reilly, have to produce a plethora of paper to help sell CFOs on the benefits of their services. In addition to the time and money saved in pitching the contract, Reilly says that further savings are achievable, because, in a more typical implement-ation, a consultant has to answer to a different master. "We've eliminated the overhead and the adversarial relationship common to many business/consulting relationships," he explains. "Here, we just focus on results."

The switch from bean counting to business results, however, is not for everyone. Employees who were once part of the corporate finance and accounting department at a very large company now find themselves working at a small business. And on October 1, OneResource opens its doors to customers. "It's a radical change," acknowledges Reilly. "Staff now have to focus on what the client wants - better reporting, better cash man-agement, better support. But they still have to keep their eye on our own revenue and expense line." In the end, he emphasises, "what clients will pay us for is results." The question is: will clients pay them at all? Finance managers at some companies may not be overjoyed at the notion of outsiders poking around their departments. Certainly, the prospect of a professional finance consultant tearing apart a CFO's performance in front of the boss will likely keep some finance managers from welcoming OneResource with open arms. But for his part, Law says competent finance managers have nothing to worry about. In fact, he sees OneResource as a place for finance managers to sharpen their professional skills. "As OneResource grows, we'll be bringing in people from our client companies. The opportunity is here to learn, both through rotating through various operations and by exposure to clients in different industries." He pauses, then smiles. "We're not in the food retailing business anymore."

Steven Crane is CFO Asia's Hong Kong bureau chief.