While traditionally it has not been easy to convince CFOs of the business benefits of Finance and Accounting (F&A) BPO, the effectiveness of some early deployments has boosted their confidence. Recently, the developments of new standards, methodologies, and process rigor that have been introduced by service providers deep-rooted in a finance heritage have helped forward-thinking CFOs explore process transformation in their efforts to achieve process redesign on a global level. Moreover, F&A sourcing activity has seen a dramatic increase over the last two years, with the number of multiscope contracts more than doubling and more than two billion dollars being spent on multiscope F&A BPO engagements last year.

Early F&A BPO deals focused largely on the service provider managing the customer company’s tactical F&A processes, with limited process change and bundling. This came at a lower cost due to cheaper labor resources and the economies of scale of delivering F&A services on a multicompany model. As a result, it took several years for companies to achieve a satisfactory level of service delivery as they were merely trying to mirror what they had done before with many new challenges introduced into the mix: Namely training a service provider to learn their own process flows and run these in an outsourced environment on whatever technology platform the company was using.

BEYOND COST SAVINGS
The value proposition of F&A BPO now encompasses many added business benefits beyond a simple arbitrage of labor to help decrease transactional processing costs. These benefits can be summarized as follows:

• Access to scarce talent. Many companies are struggling to find the F&A talent they need. The U.S.-based talent pool has been shrinking considerably, and many companies are finding that F&A BPO service providers can usually offer skills, like payroll and accounts payable, significantly over and above basic transactional tasks — and at significantly lower cost.
• Focus retained finance function on critical activities. The retained finance function can focus its time and resources toward driving ongoing quality into its financial processes and staff development and determine ongoing transfer of experience and skills from their service provider. Moreover, the finance function’s retained management can focus time and energy on service level agreement setting and rolling out governance programs, while working closely with their provider. These collaborations are often decade-long “marriages” and require increased energy and focus to achieve effective results with compromise required on both sides on many occasions.
• Continual cost reduction and performance enhancement due to process standards followed by provider. Companies can often achieve cost reduction initially through labor arbitrage, and then through increased economies of scale and increased performance levels from services providers as they continue to mature and further their offshore investment. Contracts are frequently structured to demand annual performance improvement and reduced baseline costs, while expecting the provider to drive process improvement and innovation. Additionally, today’s companies are quickly realizing that F&A BPO is an opportunity to make rapid, impactful changes to their business and take advantage of the standards service providers are developing. Many service providers are going to market with differentiated value propositions that are geared to moving companies onto their existing delivery models, with a heavy skew toward offshore delivery. They have quickly realized that they need to demonstrate industry-specific F&A process excellence to win credibility.
• Ability to increase working capital and directly impact the bottom line.  Experienced providers can devote increased resources, and have more efficient processes for managing cash flow from end-to-end solutions, such as order-to-cash and procure-to-pay. Improving the effectiveness and velocity of the cash flow can help improve management decision making, not to mention the positive impact on working capital.
• Availability of new F&A technologies. Many leading F&A BPO service providers are continually developing solutions that can work in tandem with the customer companies’ technology, or even replace it in certain cases. Providers are focused on F&A BPO solutions that can be standardized on incumbent ERPs (SAP and Oracle) with bolt-on tools and application solutions in discrete areas where value can be reaped. Additionally, solution areas like order-to-cash have moved beyond the performance of simple account collections using a billing application. They are frequently now bundled process solutions that often cross organizational boundaries (e.g., dispute management, cash-flow analytics and reporting capabilities). The benefits of bundled process outsourcing can include improved opportunities for process redesign and associated cost reduction, synergies from staff working together in the same environment, the ability to create a more leveraged management team and potentially fewer contact points with external and internal customers.
• Potential to integrate multiple disparate financial platforms, applications and middleware into one global standard. The cost savings enjoyed through labor arbitrage can offset significant enhancements to financial systems as a part of the F&A BPO initiative to achieve a single, unified global chart of accounts. We have seen many companies in the past delay F&A BPO initiatives to resolve inherent issues with their accounting systems, but there is a clear move within many of today's initiatives to combine systems integration with the F&A BPO transformation, especially where the same provider can be deployed to improve the F&A systems as part of the BPO initiative. BPO provides the opportunity for companies to make rapid changes to their business, especially where there are multiple silos of financial data strewn across geographies and business entities. 
• Transferal of risk to the supplier. Managing offshore resources in today’s business environment can be very difficult. In particular, offshore captive organizations that are not Tier 1 global brands in lower-cost geographies (e.g., India) will find it increasingly difficult and expensive to hire, train and retain quality staff resources — not to mention accounting for the geopolitical risks associated with owning offshore assets and employing offshore labor. Many companies are quickly realizing they are far better off having experienced providers take on these associated risks, as they have invested heavily in their staff development and governance programs. This can also save companies hefty management costs in running captive operations.
• Preparation for a business slowdown. The desirable time to consider creating more effective and efficient F&A processes is when business is good and there is sufficient time to plan and manage the outsourcing transition. Additionally, providers are more willing to collaborate and share the benefits when companies
  are not feeling immediate cost-reduction pressures.
• Preparation for Merger and Acquisition (M&A) activity. Outsourcing F&A forces the company to move to standard processes across business units. This can help facilitate future M&A activity by decreasing the effort associated with the integration and by improving the likelihood and accelerating the timeline of realized synergies. It also allows the company to focus on the core business during integration, leveraging the service provider’s skills and platform for integration of F&A.

POSSIBLE MISSTEPS
There is significant hard work involved in making F&A outsourcing deals work. Similar to other outsourcing areas, problems are encountered throughout the F&A BPO lifecycle: Namely planning, sourcing, transition and relationship management. Critical potential missteps include:

• Vague initial outsourcing objectives. Many companies have found that because they did formally establish these early in the process they ended up with very different relationships than that expected.
• Not understanding the processes being outsourced. This is not to be confused with transforming processes before outsourcing them. In fact, the preferred approach is to outsource first and then re-engineer in order to accelerate the benefits.
• Lack of senior management buy-in. Outsourcing relationships, like any business partnerships, need governance and support from above.
• Inadequate due diligence in choosing providers and locations. The F&A BPO provider space is maturing but remains complex. Different companies have different needs and must select providers and locations that match their requirements and risk profiles.
• Lack of sufficient retained organization to maintain strategy. The skills required to manage the provider are very different from those used to execute the processes.
• Complex technology issues. In many instances, particularly in complex industries like telecom or financial services, companies have serious issues surrounding legacy and/or highly customized IT infrastructure, which are often plagued by poor integration across business units and geographies. In some cases, bringing a third-party outsourcer into the equation can significantly complicate matters and all parties involved need to be definitive about whether to streamline these systems as part of the outsourcing engagement, or whether the customer should get its house in order prior to outsourcing.
  
  Companies can seek a significant number of ongoing business benefits from F&A BPO, while also enjoying the cost savings being offered by providers. Whereas companies invested multimillion dollars on costly ERP deployments in the 1990s where the stakeholders largely footed the bill, impactful business change can generally be experienced with F&A BPO without this cost burden.     

Philip Fersht is a Manager at Deloitte Consulting. He has worked in North America, Europe, and Asia in global sourcing for 12 years, delivering client advisory work in finance and accounting, human resources and procurement BPO. Derek Sappenfield, Senior Manager at Deloitte Consulting, has almost twenty years of experience consulting to global organizations on outsourcing, corporate strategy, process transformation and performance improvement.