Kevin Lightfoot, vice presidents, external communications,ACS,A Xerox Company offers his perspective on FAO

GS: A brief on the current market scenario. As in, during recession interest in FAO segment had stepped back, now its rebounding. How has the game changed? How is your 2011 strategy different from 2010

KL: Market Trends

We believe 2009 was the year that was most impacted by recessionary slowdowns. In 2010, the industry saw an improvement in new contract signing from 2009.Based on current industry activity, we would expect 2011 to show an increase over 2010 for FAO.

We believe the FAO industry has returned to its steady growth trend. Most notable trend in 2010, is the growing dominance of smaller valued contracts (less than $25 M in Total Contract Value (TCV)). Industry data has shown for the first time FAO contracts >$25 M TCV fell below 25% (of total new contract signings) with the major providers. Historically one third or greater of the FAO new contract signings are over $25M TCV. Many large companies (with company revenues > $5 B) are starting their FAO sourcing programs with smaller scope pilots; therefore new contract signing are dropping in value and much of the contract growth occurs in years 2 – 3 after the initial pilot is successfully implemented.

Other key trend is client’s increased demands for technology enablement to help ensure they will achieve more than just labor arbitrage benefits and service providers are contractually committing to productivity improvements over the life of the contract. A greater focus on business impact improvement (e.g., DSO) is also a growing trend, but is often negatively impacted by client’s sourcing approach (i.e., pilot programs and/or narrow scope).

ACS Strategy

With our merger with Xerox, we have commercialized our end to end Source to Pay capabilities. We have also formulized three key alliances in the Source-to-Pay area. These alliances bring additional technology enablement and capabilities with certain spend categories. We continue to invest in our F&A enabling technologies that will help drive benefits beyond labor arbitrage. We are aggressively integrating new Xerox technologies into our FAO solutions. We continue to sell F&A services within our Finance & Accounting business but we also have integrated F&A services into key industry verticals like Financial Services, Transportation, and Healthcare). We continue to be flexible and can work with clients on a large scale or pilot program.

GS: What are the different models/ methods of implementing FAO you've employed? 

KL: We offer many flexible models for our clients:

We are comfortable with large scale programs and pilot FAO implementations. We have also implemented several phased implementation to align with our client capacity to absorb the internal change. For each client, we will also evaluate if the transition of client activities to ACS should be a ‘Transfer and Transform’ or ‘Transform and Transfer’ type transition. ACS actively seeks strategic assets and continues to acquire client assets when it is beneficial for both our client and ACS.

ACS continues to be aggressive with helping our clients address the social impacts of outsourcing, especially in Europe.

GS: The adoption of cloud computing with finance applications is still slow. What do you think is the reason behind this?

KL: The majority (over 70%) of the FAO contracts signed with the major FAO providers are with Global 2000 companies (company revenue in excess of $2 B).Thus most of these companies have complex ERP requirements and have made significant investments in their ERP platforms. The ERP application is the core source system for F&A processes. Thus adopting a SaaS ERP application for this type of company is very difficult. Therefore I think adoption of cloud computing associated with the core ERP will remain low for this type of buyer.

However, the industry has focused on BPaaS (Business Process as a Service) more discretely on a functional basis (e.g., Procure to Pay, Order to Cash) and or on an industry vertical basis (e.g., claims processing). In this case, providers offer technology enablement and BPO services bundled and the work environment for the clients as well as the pricing is either subscription based, or usage based.

Adopting a SaaS ERP solution or a BPaaS model with the underlying ERP and functional tools along is more likely with the mid-market where CFO’s are more willing to balance ERP requirements for a tradeoff in ownership and costs. ACS can offer F&A BPaaS services on a cloud based SAP platform. Currently our focus for this service is the European mid-market.

GS: Which industry vertical signed the maximum F&AO deals? Industry verticals that are now moving towards FAO?

KL: Many industry sectors (over 30) are actively using F&A outsourcing as part of their overall service delivery model. Manufacturing based industries and Financial Services industries are the largest buyers of FAO services from an industry perspective. Manufacturing and Financial Services industry integrated FAO are very strong industries for ACS. In 2010, there was a lot of activity by Media, Telecom, Energy, Pharma and transportation/logistics companies. In 2011 we are seeing high levels of activity in Insurance and healthcare in addition to the other normally active industries.

GS: Which are the top delivery locations?

KL: For the industry in total, India and Eastern Europe are the primary service delivery locations (i.e., regions that have the most Service Provider FAO FTEs). With India dominating the global delivery footprint (i.e. over 60% of the industry FAO FTEs are based in India). Eastern Europe is commanding about 12 – 15% of the global FAO FTEs. Other locations like Philippines and other near-shore locations (e.g., Central America) have been active in recent years as clients seek for more diversity in locations, closer proximity and greater cultural alignment. But on a relative basis, these locations only command about 2 – 5% of the global FAO workforce. For most of ACS’s FAO contracts, India, Eastern Europe and the Philippines are our key service delivery locations. Much of our industry vertical integrated FAO and FAO associated with Defense based clients is onshore. Given the nature of some of our client industries, we believe we have a higher mix of on-shore/near shore delivery than most FAO providers.