Outsourcing Evolves

The finance and accounting offshoring (FAO) industry is now in a rapid growth cycle and a 30% increase in multiprocess FAO contracts (see Figure 1) is expected this year.

Early FAO engagements focused primarily on removing finance and accounting (F&A) transactional processes from a buyer's organisation to capture the cost benefits of offshore services from the outset. Providers did not bundle technology solutions in these contracts, since the primary focus was on basic F&A workflows and some industry- and region-specific tools, enabling the provider to manage the services.

Today, customer requirements are quickly expanding beyond the traditional drivers of cost reduction and the integration of multiple accounting processes under a single provider. Organisations must look further than the obvious benefits of FAO if they seek to truly optimise their accounting processes.

Today, buyers want to achieve top-line growth and efficiencies. Smart CXOs are now focusing on optimising the quality and 'velocity' of their dollar flow-cycle by engaging FAO providers that have the capability to deploy technology solutions that underpin, orchestrate and knit together their accounting processes.

As illustrated in Phase 1 of Figure 1, the early adopters of multiprocess FAO were largely focused on reducing administrative costs by taking advantage of a service provider's lower-cost offshore services and transitioning existing staff over to the provider.

Today (Phase 2), cost-reduction benefits have become standard across the major providers through both offshoring and economies of scale. The focus 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.

The technology requirements necessary to enable FAO to add business value beyond mere cost reduction become significantly more complex as buyers add higher-impact F&A functions to the outsourcing mix.

Impacting business value beyond direct cost reduction, through improved SOx compliance, for example, will likely require order-to-cash (O2C) engines – workflow and document management technology tools that enable more streamlined integration of data. This will provide management with quicker access to financial data to support decision-making and corporate strategy.

ACHIEVING TRANSFORMATION

So far there has been less emphasis on the technology transformation issues, which have tended to be tackled post-transaction. The unprecedented IT and ERP investments of the 1990s have been the major investments in F&A technology over the last 15 years.

The technology had to meet Y2K, euro currency standards and, most recently, SOx and Basel II compliance regulations.

While some organisations moved towards standard ERP solutions across their international operations, many opted to build more customised solutions that involved multiple systems and software applications.

Figure 2 shows that 65% of early FAO adopters have chosen to retain the ownership and support of their existing F&A systems. Unfortunately, these buyers have assumed the cost burden of transforming their technology to enable the FAO development.

Today, as customers seek more value from their FAO relationships, technology requirements are increasingly calling into question how providers will deliver the technology to the buyer. Today's buyer needs to ask the following key questions:

• Who is going to select and pay for my technology transformation?
• Should my organisation invest more internally in IT to support the outsourced F&A processes?
• Should I engage an FAO provider that can bundle technology services with my existing business processes?
• Should I use alternative technology services vendors?
• Should I consider replacing my organisation's existing systems and move onto systems the BPO supplier can provide?

We are moving into an entirely new phase in the FAO maturity curve, where CFOs, COOs, and CIOs need to collaborate and decide how best to tackle the issue of bundling their technology transformation needs with their FAO process execution and redesign.

REPLACE, RETAIN OR WRAP-AROUND

Buyer organisations have three options for exploring a technology transformation:

Replace. Moving onto a provider's F&A platform will standardise a customer's enterprise-wide systems, applications and data. Ultimately, this will increase the dollar velocity and quality of the F&A function. Moreover, enhanced severability of the F&A function enhances the offshorability of F&A processes.

Retain. As Figure 2 shows, 90% of early adopters opted to retain ownership of their existing F&A technology systems.

However, one-third have already chosen to shift the maintenance of these systems to the outsourcer. This is especially the case when the outsourcer has a strong IT services heritage (for example, IBM, Accenture or Cap Gemini).

Wrap-around. Most FAO buyers want their outsourcers to have technology solutions that are additive, not disruptive, which they can deploy across their existing F&A systems. Most large organisations with complex systems that opt for incremental FAO transition avoid many of the issues of F&A system replacement by orchestrating and managing data and workflow across disparate systems.

Moreover, there is a move to embed web services technology and use service-oriented architecture (SOA) – in particular, the BPEL (Business Process Execution Language) workflow engine. These technologies help organisations more effectively orchestrate their F&A business processes across customers', providers' and third-party outsourcers' applications. Hence, many organisations are more focused on breaking down their business processes into manageable web services (such as customer set-up, deduction calculation, or creating invoices in the order-to-cash cycle) than looking to rip out what they have and redesign all F&A processes.

RECOMMENDATIONS

So, how should an organisation approach FAO for maximum value?

• Initiate the technology discussion early in the FAO process.
• Approach FAO as an opportunity to improve access to information.
• Engage the CIO and other stakeholders early in the process when making FAO technology decisions.
• Keep the future possibilities flexible.
• Determine which providers can deploy the technology solutions your organisation needs.
• Balance the FAO strategy with other BPO initiatives within the buyer organisation.

Depending on how the buyer organisation is structured, there are several areas where an FAO engagement will touch upon other business functions; for example, payroll with HR, temporary staff recruitment with operations, or accounts payable with procurement.

Finally, be sure to explore any synergies with parallel processes and functions. It is vital to integrate the ultimately deployed technology with other functions where the business can benefit from better data integration.