Finance and Accounting
Finance and Accounting Outsourcing are set to Explode
BPO processes are like children. While they are young and have great potential, they are maturing at different rates. Human Resources (HR) is the most mature BPO process; finance and accounting (F&A), however, is not far behind. Historically, companies were more eager to give up payroll and payroll tax matters than they were to let a third party take control of their books.
F&A outsourcing has already celebrated its tenth birthday. BP led the way by outsourcing its F&A work in 1991 and, during the last decade, leading service providers gained the history, context and actual experience to develop best practices in this area.
In the 1990s, companies faced a fork in the road after they chose to outsource this business process. They could either outsource the process to a service provider, like BP did, or create a shared services center. During the last decade, the shared services option was the favorite choice.
Companies elected to reengineer their business processes, plucking the F&A function from every division and moving it into a separate organization - a shared services center. This move produced the beneficial results of outsourcing: it improved the process, lowered the cost, produced more management oversight and installed better controls. Once the operating results were in, boards of directors were pleased with the improved results. The initial success of a shared services operation convinced corporate leaders that F&A outsourcing was superior to keeping the process in house.
When economic recession and international competition through the Internet became economic keystones, corporations sought greater savings from their shared services operations. But those savings were not possible through this approach.
The only way to generate the next level of sustainable savings was to outsource.
The BPO Marketplace is Exploding
Today, F&A outsourcing has taken off; in fact the marketplace is exploding. The limited horizon of the shared services option is one reason. Quite a few companies with shared services centers have noticed the enviable results outsourcing has produced. They are now in the process of selling their shared services organizations so they can outsource to a service provider with the best practices. The other reason for this burgeoning BPO marketplace is that a plentitude of best-practice service providers is now available.
Now the poker hand is different; today the ace is to outsource.
Corporations have decided they want to forego the investment and cost of building their own shared-services center and move directly and quickly into the transformation of a business function. By going directly to outsourcing, they leapfrog over companies that chose the shared services route.
The end result: Companies can reduce costs and gain better control and tighter oversight over their numbers by outsourcing F&A. These empowering results are lighting a fire under BPO.
While all BPO processes are still in the formative stages, F&A falls just behind human resources in process maturity. Originally, many companies chose to create a shared services center but have since opted to sell those centers and switch to an outsourcing strategy.
Currently, outsourcing to a BPO service provider can provide greater savings and better results. Companies are bypassing the shared services route, which is helping the BPO market to explode.
Finance & Accounting BPO Adds Up to Business Transformation
Finance and accounting outsourcing is moving along the maturity spectrum from transaction processing to true business transformation. Last year, companies realized business process outsourcing can provide a successful road map for process reengineering that will add up to greater profitability.
In today's world, clients are assuming that an outsourcer has an efficient, proven transaction engine. They are looking for value beyond the processes these engines serve.
The emphasis on business transformation has flip-flopped the way buyers think about outsourcing. Previously, buyers were interested in outsourcing their IT first. Now, the process leads and IT follows.
In 2002, the finance and accounting BPO spend totaled $40 billion, up from $36 billion the year before, according to IDC, a research firm in Framingham, Massachusetts. IDC estimates this segment will reach almost $65 billion by 2006, a 12.3 percent, five-year annual compounded growth rate.
The Down Economy's Legacy
The down economy contributed to the changing emphasis of BPO. At a time when every dollar counts, buyers are searching for service providers who can provide the analytical data they need to understand their financial data better. CFOs are feeling the pressure for better data at a time when most are looking down the barrel of budget cuts.
The New Importance of Labor Arbitrage
Like the other BPO processes, transaction engines are altering the landscape. These engines are "an idea whose time has come". Transaction engines are not only about cost savings, even though they can generate generous savings of up to 40 percent for the buyer. More importantly, they improve the quality of the data, which is just as compelling as cost reduction.
Transaction engines rely heavily on their offshore component. "It used to be, you moved the people to where the work was. Now you move the work to where the people are". BPO's new power comes from the large concentrations of highly capable workers in other parts of the globe.
Service providers are carefully calculating where the best values are. Of all the BPO processes, finance and accounting has the most opportunities for offshore leverage.
One new area powered by offshore labor is the preparation of U.S. individual tax returns. American Certified Public Accounting firms are turning to Indian firms to cut costs.