Cost-related benefits will always be the top of mind reason to outsource services. However, in some of the current Finance and Accounting Outsourcing (FAO) contracts, it has been noticed that apart from just cost savings, the outsourcing of services helped in accomplishing a few customer objectives such as:

• Leveraging FAO to undergo a major, company-wide, global change agenda
• Helping consolidate internal finance operations after a merger and/or acquisition
• Moving an under-performing shared services model to FAO, helping improve business operations
• Transitioning an existing FAO contract from one provider to a different provider
• Using FAO to help a new competitor enter into an existing market
• Using FAO to help an existing competitor enter into an already-established market
• Adding FAO to a larger, company-wide portfolio of sourcing initiatives.
  We see FAO contracts transitioning mostly in one of the following ways.
• Some take the “toe-dipping approach” to FAO that is outsourcing one function at a time and expanding to a broader model
• Others are taking a “lift and shift” approach to FAO that is transitioning everything at once, or in pieces
• Still others decide to fix the process first so that they have a handle on exactly where things stand pre-outsourcing, and can determine at a later date their current scenario post outsourcing.

I can point to several examples of existing contracts fitting exactly into the categories listed above. I find a few, in particular, to be extremely relevant so that readers of this article may feel “ME TOO” when understanding these sourcing initiatives.

Using FAO to Facilitate Operations Post Merger
In 2001, after the merger of two global pharmaceutical giants Glaxo Wellcome and Smithkline Beecham in 2001, the resultant entity — GlaxoSmithKline (GSK) — consolidated its finance functions into an in-house shared services center (U.K. SFS) to make the combined company more efficient and to reduce costs.  Although operations generally were stable and performing well, the U.K. SFS was operating out of a high-cost location from Western Europe.

GSK needed a breakthrough strategy. It could not deliver on its internal cost-reduction target of 40 percent by itself. GSK also could not drive further standardization in-house. Furthermore, the company did not have the capability to deliver on vast, transformative-process improvements, given the cultural issue of managing 18,000 employees across different business units.

To meet its needs, in Jan. ’05, GSK began a five-year FAO engagement with service provider Genpact. Outsourced processes include: Finance and accounting, analytics, e-learning, re-engineering and fraud data analysis.  The geographic scope for services includes the U.K. and the U.S. as well as some services for GSK’s global finance functions.

The outcome of GSK’s engagement with FAO thus far has been significant due to the achievement of the following results in just two years time:

• Reduced costs by 40 percent for U.K. SFS
• Improved process efficiency, and standardization for its finance and related procurement functions
• Increased visibility to operational metrics
• Strengthened internal controls via a high-quality compliance and controllership environment
• Achieved time to benefit by completing migration on time
• Met all business objectives.

GSK expects to realize a payback on its outsourcing investment within just three years.

Using FAO to Consolidate Finance Functions
In Feb. ’05, Unilever Europe set upon an ambitious change program to integrate its business groups and countries into a simpler, more efficient organization that would optimize cost synergies/savings and leverage its scale.

The company ultimately chose to outsource its finance functions for:

• Faster and more direct access to the benefits of economies of scale
• Faster roll out of technology
• The ability for Unilever Europe to focus on its core business.

In early 2006, Unilever Europe entered into an FAO contract with IBM that is expected to last seven years, including an initial two-year transition period, which is now in the process of being completed. Outsourced services include: Accounts payable, bill-to-cash, travel and expense, fixed assets, credit and collections, and general accounting.

This initiative thus far is seen as a groundbreaking success by Unilever Europe, and serves as a key enabler for its company-wide change program, having already delivered against the expected benefits. The company also believes that this approach to FAO provides a solid basis for the future service in Europe, as this could be a model that can be leveraged elsewhere within Unilever.  Additionally, by de-capitalizing, Unilever Europe has access to a flexible delivery model that accommodates evolving business requirements, while ongoing investment in people, infrastructure and technology is performed by its outsourcing partner.

The Supply Side Angles to Meet Demand
Those with whom we work most closely are more anxious to service business having a “value-add” component versus straight transaction-processing, solely cost reduction functions. Such commodity services diminish their abilities to infuse innovation into the process, and the benefits are more difficult to realize in other parts of the finance function. Instead, suppliers are ramping up capabilities, expanding their regional and international footprints, and continuing to improve their internal processes such that they can prove to provider organizations the need to evaluate their finance function in a more strategic manner affecting the entire company.
Building upon my article of last month in which I indicated that the FAO market has shifted to an FAO 2.0 mindset, explanations of a mere two examples above show how and why FAO is being viewed in our global landscape today.

Lisa is the CEO and founder of FAO Research, an independent research firm focused exclusively on the FAO and procurement outsourcing markets. As a leading analyst in the outsourcing industry for more than 12 years, she works closely with customers, advisors and suppliers of outsourcing services.