Money Matters
A Growing Industry
The industry's early years began slowly, with many senior finance leaders nervous about placing their day-to-day processes (mainly the accounts payable and accounts receivable functions) under the management of a separate provider. As a result, well over half of large-scale financial services, telecom and utilities/energy firms implemented their own "shared services" or captive F&A support operations. In these cases, they took advantages of low-cost near-shore and offshore resources, and the synergies of having a centralized provision of services across the organization.
The emotional closeness of F&A processes to these organizations (billing to telecoms firms and the order-to-cash cycle for banks) has caused many of them to retain control over their F&A services. This is now changing, with the development of mature F&A offerings from global business and IT services providers such as Accenture, IBM, Genpact, HP, ACS and Capgemini. These companies have the capability to deploy the operational, consulting and technology expertise and services necessary to offer cost savings well in excess of 50 percent of administrative F&A costs.
Moreover, we are also witnessing the emergence of specialist F&A outsourcing suppliers, such as the emerging Indian suppliers Progeon (Infosys), WNS and Intelenet, who are aggressively targeting firms looking to take quick advantage of significant cost savings offered by offshore labor arbitrage.
Making Room for Strategy
The consumer goods sector is fast emerging as one of the hottest industries to adopt full-scope F&A outsourcing (FAO) with Procter & Gamble, Unilever and Colgate-Palmolive as major pioneers moving quickly towards a fully-outsourced model for their transactional F&A services. This provides the opportunity to focus existing finance personnel on more strategic processes, namely budgeting, risk management and management reporting.
Many companies that initially went down this shared services path are now looking to move onto a fully-outsourced model, where all the transactional F&A services are delivered from the outsourcing suppliers' staff and facilities. With issues like Sarbox compliance no longer a barrier and permission to offshore becoming widely accepted, there seems little point in persisting in a shared services strategy when global outsourcers can take on the headaches of labor attrition and IT maintenance, delivering the identical services back to the customer at much lower cost due to their economies of scale.
Requirements are quickly expanding beyond the initial drivers of cost reduction and the integration of multiple accounting processes under a single provider (Figure 1). Today (Phase 2), cost-reduction benefits have become standard across the major providers and the onus has moved towards providers having the ability to integrate core accounting processes (order-to-cash, charge-back management and procure-to-pay) with the general ledger. The more established providers are now achieving critical mass and can be segmented into the maturing solutions of Phase 3. Deploying single, worldwide instances of accounting systems and charts of accounts for FAO buyers is now taking center stage among these providers.
Coming of Age
The F&A outsourcing business is now on the move for the simple reason that the vast majority of adopters have enjoyed success in reducing costs. The next phase will see the bundling of F&A technology services with the F&A processes to reduce costs even further and create efficiencies of scale and data access that can impact to the top-line for the outsourcing buyer, not just the bottom-line.
The industry's early years began slowly, with many senior finance leaders nervous about placing their day-to-day processes (mainly the accounts payable and accounts receivable functions) under the management of a separate provider. As a result, well over half of large-scale financial services, telecom and utilities/energy firms implemented their own "shared services" or captive F&A support operations. In these cases, they took advantages of low-cost near-shore and offshore resources, and the synergies of having a centralized provision of services across the organization.
The emotional closeness of F&A processes to these organizations (billing to telecoms firms and the order-to-cash cycle for banks) has caused many of them to retain control over their F&A services. This is now changing, with the development of mature F&A offerings from global business and IT services providers such as Accenture, IBM, Genpact, HP, ACS and Capgemini. These companies have the capability to deploy the operational, consulting and technology expertise and services necessary to offer cost savings well in excess of 50 percent of administrative F&A costs.
Moreover, we are also witnessing the emergence of specialist F&A outsourcing suppliers, such as the emerging Indian suppliers Progeon (Infosys), WNS and Intelenet, who are aggressively targeting firms looking to take quick advantage of significant cost savings offered by offshore labor arbitrage.
Making Room for Strategy
The consumer goods sector is fast emerging as one of the hottest industries to adopt full-scope F&A outsourcing (FAO) with Procter & Gamble, Unilever and Colgate-Palmolive as major pioneers moving quickly towards a fully-outsourced model for their transactional F&A services. This provides the opportunity to focus existing finance personnel on more strategic processes, namely budgeting, risk management and management reporting.
Many companies that initially went down this shared services path are now looking to move onto a fully-outsourced model, where all the transactional F&A services are delivered from the outsourcing suppliers' staff and facilities. With issues like Sarbox compliance no longer a barrier and permission to offshore becoming widely accepted, there seems little point in persisting in a shared services strategy when global outsourcers can take on the headaches of labor attrition and IT maintenance, delivering the identical services back to the customer at much lower cost due to their economies of scale.
Requirements are quickly expanding beyond the initial drivers of cost reduction and the integration of multiple accounting processes under a single provider (Figure 1). Today (Phase 2), cost-reduction benefits have become standard across the major providers and the onus has moved towards providers having the ability to integrate core accounting processes (order-to-cash, charge-back management and procure-to-pay) with the general ledger. The more established providers are now achieving critical mass and can be segmented into the maturing solutions of Phase 3. Deploying single, worldwide instances of accounting systems and charts of accounts for FAO buyers is now taking center stage among these providers.
Coming of Age
The F&A outsourcing business is now on the move for the simple reason that the vast majority of adopters have enjoyed success in reducing costs. The next phase will see the bundling of F&A technology services with the F&A processes to reduce costs even further and create efficiencies of scale and data access that can impact to the top-line for the outsourcing buyer, not just the bottom-line.