Outsourcing Finance

Whether your company is considering outsourcing or has already done so, it is joining an increasing global trend. Outsourcing is the fastest growing segment of the financial transaction services market with over 100 comprehensive finance and accounting (F&A) outsourcing contracts currently running. Considerable amounts of money are being spent on outsourcing, with global companies spending US$ one to two billion annually on finance and accounting outsourcing solutions, for contracts totalling between US$ 15 to 20 billion in 2005. Many media outlets have been reporting on the difficulties of companies who have embarked on outsourcing, so what has the journey really been like so far, and how do companies make the most of outsourcing? By Bob Cecil, Finance and Accounting Practice, EquaTerra.

In a recent EquaTerra research brief, the three major challenges faced by finance and accounting (F&A) executives today were cited as: reducing costs, delivering value added services, and regulatory compliance. So how does outsourcing help with these? On the cost front, companies may not be at the "holy grail" of 1% of revenue but outsourcing helps progress towards this goal. On the services front, internal customers agree that outsourcing means they spend less time struggling with the numbers, and more time managing them. And finally, on regulatory compliance, the structure the outsourcer brings helps provide the documentation and assurance around compliance and control procedures.

So some comfort on the three major challenges, but how many companies are leveraging the service provider capability to take their operation to the next level?

Some worst practices

By looking at some examples of worse pratices in outsourcing, companies can start to identify the issues they need to address. Does your company "resemble" any of them?

1. "I got everything I wanted at the negotiating table." In successful negotiations there are no winners, only two parties who have arrived at a mutually beneficial and sustainable business arrangement. When one party 'wins', the other party loses, and in a long-term relationship, that only means they will be back later to recover. Nobody, no matter how strategic they say a company is to them, can afford to sustain an outsourcing transaction that is fundamentally unsustainable; the day of reckoning will come.

2. "Who are these people and why are they here?" A challenge in any change agent role is managing the change itself. Do not ignore the stakeholder groups and then wonder why stakeholders do not line up behind the outsourcing team. Consider the diversity of stakeholder groups – each will have its own idiosyncrasies to be addressed. Typically the groups to consider are:

a. Executive management – keep them apprised of status and direction to ensure they remain embassadors for change, and not amplifiers of discontent.
b. F&A management – a brutal truth, but the implied message to the function's management layer is that an outsider is replacing them. Adding "injury to insult" next their empires are removed – a truly personal loss for some.
c. F&A users – for it to get better, how they get their F&A services will change. Acknowledge that and facilitate it.

3. "Where'd the innovation go?" Order has been brought to the chaos, but to the average user things do not look very different, the reality is below expectations. "BPO has been stabilised into a coma," that is, in assuaging concerns about the change, did the outsourcing team compromise too much on the vision?

Best practices

What are the finance & accounting outsourcing best practices to consider taking any situation to the next level? First, start at the beginning – the service provider and the contract. Make sure the provider emphasises innovation. Some providers have done well operating a "lift and shift" model – that tends to institutionalise the status quo. Look for providers with the appetite and track record to truly drive the innovation required. Ensure the contract forces innovation, with a scope of services reflective of the future world, and the contractual mechanisms to facilitate not inhibit change. Establish service governance practices that support continuous improvement.

Secondly, get the internal organisation ready. This will be an ongoing challenge. Use external examples of successful changes to help build the credibility of the story. And remember the different stakeholder groups – manage them as such and ensure a good feedback mechanism allows for message recalibration.

Next, stake out and drive to a customer focused service delivery vision. Too many initiatives get wrapped in the tools being implemented and lose sight of the end result. The broader organisational measure of success is not 'do we have the latest technology', it is, 'did this contribute to the organisations business objectives' (e.g. improved profitability, facilitate growth, support new product introductions)?

Fourthly, the new service delivery model must have an innovative customer interaction layer. Traditional finance and accounting practices provide limited line of sight from the unit executive to the data they need to run the business. Usually running through the finance function, this intermediary step introduces time, cost and the possibility for error. The future vision should continually push the boundaries on giving direct access of data to those most in need. While in 1975 it is hard to imagine an executive responding to their correspondence without secretarial help, how many in 2007 are not responding real-time with a PDA between flights? That is the mindset needed to get the most out of an outsourcing initiative. Leverage web-enabled tools to provide this direct line of access. The transparency created should also address control and compliance requirements.

And finally, one of the key best practices for finance and accounting outsourcing is that while finding more efficient ways to do work, or using global labour arbitrage are samples of ways of driving cost out of processes, actually making the work go away altogether is even better. Guide future process design by these principles:

1. It is a good compromise to find the one way to do something across your business even if for certain business units it is not an "ideal" fit for their needs. Process differentiation is expensive.

2. Address internal control and speed jointly by clearly documenting, communicating and then enforcing authorities as low down in the organisation as possible. Multiple approval requirements are actually a weakness of the internal control environment and should be examined. Empowerment, coupled with strict accountabilities is a powerful efficiency and effectiveness tool.

3. Technology is just a tool. The customer experience should rule. So sometimes low levels of technology are best. Other times offshoring is a good solution. Consider carefully the scope and develop an optimum point in the application of the various service delivery strategies.

Hopefully by now you have seen some of yourself in this article and why you might not be where you wanted to be. The opportunity starts now to learn from the experiences of others and co-opt those into your environment. Maintaining a clear vision of what is best practice in finance and accounting outsourcing will help achieve it. And at a minimum, if you keep the customer viewpoint first, you will be off to the races.

Bob Cecil, Finance and Accounting Practice, EquaTerra.

EquaTerra's sourcing advisors help clients achieve sustainable value in their business processes. EquaTerra has deep functional knowledge in Finance and Accounting, HR, IT, procurement and other critical business processes, with advisors throughout North America, Europe and Asia Pacific, helping clients to achieve significant cost savings and process improvement with outsourcing, internal transformation and shared services solutions.

Contact: gina.blackie[at]equaterra.com

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