“Beyond its prominence as a delivery location, in recent years India has also emerged as a buyer geography for FAO. Last 2-3 years have witnessed a significant growth in terms of domestic FAO deals, with most leading FAO service providers considering this market segment as an important  part of their future growth strategy" added Gupta  .

Top Trends to Watch Out For in FAO

Demand in the emerging market- whether it is India or Asia Pacific or Latin America- for FAO services will grow this year. Shantanu Ghosh, senior vice president and global head of practices, solutions and transitions, Genpact said, “The reason being a lot of multinationals - which are US and continental Europe based- have done their first wave of FAO, where they obviously focused on high impact geographies like US or UK or continental Europe are now focusing on their second or third wave outsourcing through the new market. These economies are creating companies that are growing from small to medium to big and they are expanding outside their home territories. They are also looking not only from the prospects of labor arbitrage but also from the prospect of creating growth platforms along with delivering process excellence   through use o process management expertise.”

FAO will continue to increase in the developed markets, which is the source destination for demand. Demand will continue to come from late adopters. Ghosh shared, “These are the people who have not jumped on the FAO bandwagon earlier, but now have seen the model get proven and have got enough confidence that this works and they are therefore now coming in the market. Many of them are large but that also includes the medium business segments that are now beginning to show interest in now getting into the FAO market.”

For people who have experienced their first wave of FAO, they can be clearly seen going up the value chain. Lot of the business with existing customers that was in the initial pieces of transactional and little beyond transactional like ledger FAO has now moved on to closing reporting, financial planning, tax support etc.FAO is on its second generation of what can be done. Gupta stated, “Financial Planning & Analysis (FP&A) represents an emerging area in FAO. FAO has moved beyond just Accounts Payable, Accounts Receivable and General Ledger.  An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach.” 

The role of technology in FAO has evolved from the basic “tie-and-run” model to an “augmentation” model. In 2010, technology augmentation emerged as the new “normal” – nearly 50 percent of the new contracts included add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals/dashboards.

The adoption of performance-based incentives and/or gain-sharing has increased. As the FAO value proposition expands, the interest in performance-based incentives and/or gain-sharing models has increased to incentivize service provider to deliver beyond standard expectations. Buyers are looking at value propositions beyond just labor arbitrage.

There is an increasing trend of “verticalization” in FAO, moving away from the traditional assumption that FAO is a horizontal function. Gupta shared, “Many service providers are coming up with industry-specific FAO solutions (e.g., focused offering in travel, telecom, utility etc.). Service providers are also aligning their sales and delivery team along key verticals to make a targeted market approach.”