The value of Finance and Account Outsourcing (FAO) contract activity in the 12 months ending September 2008 was notably lower than those in the 12 months ending September 2007, and indeed lower than any similar 12-month period in the past five years.

So why was this and what are the prospects for the FAO market in 2009 and beyond?
There are a number of reasons for this. Firstly, 2007 was the peak of FAO activity in the past five years and so represented a golden year for FAO. Accordingly, it was going to be a difficult year for 2008 to beat.

In 2007, there were landmark contracts for FAO including:

• Infosys’ $250 million multiprocess FAO contract with Philips. This was a particularly significant deal as it reflected the outsourcing of a major in-house shared service environment, which now not only needed to partner both to invest and re-energize service delivery but also to relocate shared services centers into key “growth” economies.
• BT’s renewal of a $250 million FAO contract with Steria was a significant reaffirmation of one of the earliest major F&A outsources. BT also reaffirmed its commitment to FAO by extending the scope of its FAO beyond the transactional services carried out through Steria with the outsourcing of record-to-report functions to Accenture.
• Microsoft’s expansion of its FAO activity to a more global level with the award of a $185 million F&A and procurement outsourcing contract covering 92 countries to Accenture.
• Capgemini’s award of FAO contracts by NXP Semi-conductors and SKF.
• Genpact’s contract with Kimberly-Clark.

So, 2007 demonstrated a number of trends in FAO including the globalization of F&A support for International markets and a greater emphasis on record-to-report service delivery.

This globalization of FAO continued in 2008, notably with Capgemini being awarded a seven-year contract to support Unilever’s businesses in Latin America. However, despite this latter contract, HP’s contract with Tribune Publishing and the recent award of an FAO contract renewal to ACS by UTC, the scale of FAO contract activity seen in 2007 has not been repeated in 2008.

Nonetheless, the broad trends in FAO continued. Key trends in FAO in 2008 included an extension of both delivery locations and markets served with marked extension of delivery capability into Central Europe and Latin America, with the latter not only acting as a nearshore location to serve North America, but also increasingly serving the important growth markets of Latin America itself. It is likely in 2009 that the delivery capability will develop in further regions with, for example Northern Africa, being utilized to serve both English-speaking and French-speaking markets.

In addition to the benefits of labor arbitrage largely being achieved from FAO, there was a marked increase in the trend to apply increased automation to FAO. For example, HP has been increasingly emphasizing the use of technologies such as e-invoicing, which the company claims can achieve 15,000 to 20,000 invoices per full-time employee, and auto-reconciliation. Some of these technologies are still at an early stage of deployment, and this trend will continue in 2009 and 2010.