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The finance and accounting (F&A) outsourcing market is primed for growth. Nearly three-quarters of corporate executives (71 percent) see demand for outsourcing increasing over the next three years. That's what Accenture Finance Solutions and the Economist Intelligence Unit discovered in a study released this June. The two organizations analyzed responses of 236 participants online and then interviewed 44 worldwide leaders face-to-face for the study, entitled, "Outside Upside: Finding Focus Through Finance Outsourcing."

The study found that increased cost pressures were the No. 1 driver for outsourcing in the F&A space. "In the last three years, we've noticed there's now a much greater focus on the bottom line," reports Stewart Clements, managing partner for Accenture Finance Solutions.

However, cost savings have always been a major impetus to outsource. Clements says the next three largest drivers are "what's interesting" because they outline a major fundamental shift in the F&A marketplace. For the first time, companies are using outsourcing as a catalyst for business change. Those drivers are:

• Reaping the benefits of economies of scale
• Benefiting from the technology and experience of the service provider
• Enjoying a higher quality of service from the service provider

"Cutting costs and enhancing productivity remain prime motivators, but it's clear that some companies see outsourcing as a strategic weapon for change," Clements explains. "Outsourcing brings an outsider's discipline to reviewing and reshaping entire business processes, helping companies execute ambitious improvement plans."

He says today's buyers realize outsourcing can take them beyond what they can achieve themselves. "They are now realizing they can't enjoy continuous improvement if they invest in this process themselves," adds the Accenture executive.

While cost is No.1, everything else is about quality and service. Clements says the study has thrown down the gauntlet to BPO service providers. "We need to find a way to improve our services," he says.

Everyone Has To Work on Metrics

Another area needing improvement is governance. Surprisingly, 82 percent said they have no formal metrics in place to measure the success of their outsourcing arrangements. "Metrics encapsulate the arrangement objectives, provide a focus for delivery, and clearly measure the results," says the Accenture executive.

Clements, who is based in London, England, says the study discovered most buyers realize governance is important but they don't know how to go about it. This can create a problem down the road. "How do you know if the provider is meeting your service level agreements if you don't know how to monitor performance?" asks Clements. He adds that Accenture believes "good governance is essential for a successful outsourcing relationship."

While the study did not break out findings by region, it determined that F&A outsourcing is gaining acceptance in the Asia Pacific region, where it is not yet as common as in the United States or Europe. Economic expansion, especially in China, is one reason for the anticipated growth in Asia.

Approximately 30 percent of the companies reported they already outsource some finance and accounting functions, with two-thirds (65 percent) characterizing the arrangement as successful (57 percent) or extremely successful (8 percent). Employee payroll is the F&A process buyers outsource the most (27 percent.) Budgeting and forecasting are the two finance and accounting functions buyers are least likely to outsource (one percent). Not surprisingly, the survey indicated that executives are more inclined to outsource generic finance processes than core operations.

Benefits Transcend Cost Reductions

Other findings include:

• Two-thirds (66 percent) of respondents cited lower costs and maximizing efficiencies as the primary benefit of outsourcing. For instance, a French specialty chemicals company reported that it reduced its finance and accounting costs by 30 percent in two years by outsourcing the transaction part of these functions to Accenture.
• Respondents reported the benefits of finance and accounting outsourcing transcend cost reduction, with 32 percent pointing to increased business productivity on the part of the finance team.
• More than 55 percent felt that finance outsourcing sharpens the focus on core competencies, a key enabler in business transformational change. The drawbacks of outsourcing cited most often by survey respondents were:
• The risk of valuable data falling into competitors' hands (52 percent)
• The risk that the cost of outsourcing will exceed expectations (48 percent)
• The erosion of in-house knowledge (45 percent).

Lessons from the BPO Outsourcing Journal:

• F&A outsourcing is primed for growth in the next three years.
• Cost still remains the No. 1 driver. But catalytic business change is No. 2. This marks a fundamental shift in the marketplace as businesses seek the expertise and technology of a service provider to reengineer the processes.
• Governance is a problem. Most buyers are still clueless about how to go about this.

Publish Date: August 2003

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Copyright © 2003 - Everest Partners, L.P.

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