Blogs - Finance and Accounting Services Outsourcing
| Which Areas Should You Begin Your Finance And Accounting Outsourcing (FAO) Journey With? |
| By Manish Vora on 7/28/2010 8:32:03 AM |
The recent Webinar on the ‘Role of Finance and Accounting Outsourcing in Achieving the CFO’s agenda,’ conducted by WNS in partnership with FEI, revealed that 80% of the CFOs surveyed believed that FAO was an important change effort. The key benefits that they sought out of outsourcing their finance and accounting function were reduction in costs; gaining cost savings to fund transformation; and gaining access to external skills, knowledge and expertise.
One question that came up during the Webinar was around the processes that one would begin their outsourcing journey with. The survey revealed that:
- 49.5 percent of organizations considered FAO as a tool to outsource administrative, transactional back-office functions like accounts payable, reconciliations, T&E processing and the like.
- However, 50.5 percent perceived FAO as a tool to address both operational and strategic processes like financial, planning and analysis, budgeting and forecasting.
This is a clear departure from how FAO was viewed 2-3 years ago. This is also an indication that the FAO market has matured and the CFO community is open to leveraging FAO as a strategic tool and not just a vehicle to reduce costs. Companies are outsourcing their entire financial transaction processing effort, recognizing that their own strength lies in the use of financial information, and not its creation.
Every organization has its own unique set of challenges ─ these could be in many forms, including cost pressure, process maturity, current set-up (shared services versus decentralized), technology environment, level of automation, cultural issues, prior experience with outsourcing and management buy-in. These factors play an important role in determining the speed and extent of outsourcing.
At the start of an outsourcing journey, some companies choose to go ‘inch-wide and mile-deep’ while others choose to go ‘mile-wide and inch-deep’. In the former approach, companies select one or two transactional processes (For example, AP or cash applications) and outsource a significant portion of the selected activities. In the latter approach, companies pick a wide range of processes that span across the CFO’s organization and outsource the ‘low-hanging fruit’ within each function initially.
From an internal change management perspective, the ‘inch-wide and mile-deep’ approach is easier to implement, since the number of internal stakeholders that get directly impacted by outsourcing will be limited. Most companies view this approach as a pilot before they embrace outsourcing to its fullest potential. We have seen many first-time buyers embark on an FAO pilot.
The ‘mile-wide and inch-deep’ approach is typically adopted by companies that have determined that outsourcing is an integral part of their long-term corporate strategy. For these organizations, the question is not whether they should, it is rather how much and how quickly they should outsource. When outsourcing is mandated as part of the corporate strategy, we typically see a larger outsourcing initiative that touches stakeholders across the entire finance organization and sometimes even outside finance.
In conclusion, each organization must formulate an FAO strategy that best meets its needs. Companies must have an end-state in mind as they create their outsourcing roadmap. Outsourcing is a strategic initiative and for it to be a success, outsourcing must be well thought-out and have senior executive commitment. |
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