F & A outsourcing: what buyers are saying; Original research from an FEI member questionnaire details current views about outsourcing finance functions--including what most would and would not outsource.Outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. finance functions--like auditing, tax consulting and payroll processing--has been going on for many years. But today, companies increasingly are asking solution providers to manage business processes on more of a turnkey, full-service basis, rather than transactional or processing services. Suppliers like Exult and others lend credibility to the value that many companies have seen from outsourcing portions of their finance procedures. The finance and accounting (F & A) business process--including accounts payable, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , order management and tracking, treasury functions, financial reporting, tax consulting and internal audit services--is expected to be one of the most widely outsourced business process categories in the near future. One industry estimate pegs spending on F & A outsourcing services at $65 billion by 2006, a 12.3 percent five-year compound annual growth rate. Even Dun & Bradstreet's Global Barometer for Outsourcing predicts that F & A outsourcing will represent 10 percent of the total worldwide market for outsourced services by 2005. All of this data shows the growing importance of F & A outsourcing and makes it one of the fastest-growing segments of the business process outsourcing Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain its position in (BPO BPO Business Process Outsourcing BPO Benevolent & Protective Order (of Elks of the USA) BPO Benzoyl Peroxide BPO Business Process Optimization BPO Broker Price Opinions BPO Buffalo Philharmonic Orchestra ) industry. To understand what finance professionals--as the buyers of these services--truly think about F & A outsourcing, Financial Executive partnered with Ross Research of Cambridge, Mass., a firm noted for its research into outsourcing practices. Working with principal Lisa Ross, we developed a questionnaire on the subject that was emailed in December 2003 and January 2004 to FEI FEI Fédération Équestre Internationale. members. More than 100 members responded. Ross then tallied and interpreted the results and drafted a full report. Two sponsors, Exult and the law firm of Hunton & Williams, supported the research; neither organization was involved, directly or indirectly, in this project or the analysis of results. (For more about the methodology and the sponsors, see the box, "Methodology and More.") Why Outsource F & A? A myriad of factors drive companies to outsource F & A. The most important reasons listed by study participants indicate a growing sophistication so·phis·ti·cate v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates v.tr. 1. To cause to become less natural, especially to make less naive and more worldly. 2. on the part of outsourcing buyers--cost savings is no longer the preeminent pre·em·i·nent or pre-em·i·nent adj. Superior to or notable above all others; outstanding. See Synonyms at dominant, noted. [Middle English, from Latin prae reason for outsourcing, though it is still an important consideration. The most important reasons that executives said were primary drivers in their decision to outsource F & A include: Access to better technology and systems Cost savings (reduce and control operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. ) Increased service levels The table above illustrates the importance levels that senior financial executives place on each factor as being a driving force behind the decision to outsource F & A functions. What's Being Outsourced? The types of F & A functions that have been outsourced to date, as noted by the senior financial executives in our study, represent relatively simple types of processes. The most widely outsourced F & A functions are: Tax consulting Payroll -- (Note: Some companies include payroll as a finance function, while others categorize cat·e·go·rize tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es To put into a category or categories; classify. cat it as part of the human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. business process.) Two additional F & A functions that CFOs and other financial executives might consider outsourcing, if they are not already doing so, include: Travel expense reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. Risk management The top three F & A functions that respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. would not outsource include: 1) Financial management activities (operating budgets/forecasts, capital investments, treasury functions, equity financing/debt, cash management, budgeting, performance analysis, investor relations Investor relations The process by which the corporation communicates with its investors. ) 2) General accounting (general ledger General Ledger A company's accounting records. This formal ledger contains all the financial accounts and statements of a business. Notes: The ledger uses two columns: one records debits, the other has offsetting credits. , cost accounting/revenue, equity accounting/debt, statutory accounting, fixed asset accounting, business unit accounting) 3) Financial reporting and accounting We were surprised, frankly, at the high number of F & A activities that CFOs and other senior financial executives would not consider outsourcing; yet, we believe that over the course of the next year or two, smart organizations will change their minds and elect to outsource more of these F & A functions. Why? Three reasons: Transactional F & A functions--like accounts payable/receivable, leases, order management and tracking, billing/customer invoice, customer credit and expense reporting--are becoming increasingly commoditized, making them ripe for outsourcing. Today's worldwide economic realities and competitive business environment are forcing finance departments to operate in a more strategic and "lean" manner. The challenges of Sarbanes Oxley compliance--both current and "Year 2"--make outsourcing of certain F & A processes an extremely sound business decision. Outsourcing service providers are typically in a better position to meet Sarbanes-Oxley compliance issues than the client company, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. sourcing advisory firm EquaTerra (www.equaterra.com), since outsourcers already have to document workflows and processes. Service providers will not assume fiduciary responsibility, but will be responsible for the processes instituted during an outsourcing transition that enable the company to insert control points for far less cost than if implemented on their own. Difficult Phases The largest number of financial executive study participants believes that transition/implementation is the most difficult phase of the F & A outsourcing process (see table on page 54). This phase is where the "real work" begins and everything starts being gauged--from the quality of the contract to service level agreements to the true capabilities of the service provider and the relationship between buyer and outsourcer. The next "most difficult" phase, according to respondents, is ongoing operations, followed by negotiation/agreements. The transition/implementation stage is of utmost importance because it represents the first real task that the outsourcer is assuming on behalf of the client, so expectations of the client company's financial executives are extremely high. Change is almost always difficult, but such a huge change--coupled with new processes, cultural issues and new worries about managing a function not in their control, so to speak--is particularly worrisome. Some financial executives who participated in this study offered the following verbatim ver·ba·tim adj. Using exactly the same words; corresponding word for word: a verbatim report of the conversation. adv. responses as to why the F & A outsourcing transition/implementation has been the most difficult phase for them: Implementing change to internal processes Cultural issues Important to get it right and keep it transparent with our customers Steep industry learning curve, coupled with adverse affect on morale Risk of noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance if implementation is flawed flaw 1 n. 1. An imperfection, often concealed, that impairs soundness: a flaw in the crystal that caused it to shatter. See Synonyms at blemish. 2. or fails Change management of our employees and their willingness to assist in the knowledge transfer process This is the area where it will work or it won't. Is F & A Outsourcing Working? Despite some challenges, nearly all financial executives (90 percent) indicated that they are satisfied with their current F & A outsourcing arrangements. In addition, nearly half, or 42 percent, of study participants have every intention of outsourcing additional F & A functions. The executives noted that factors contributing to their satisfaction include: improved handling of the outsourced functions, cost effectiveness and delivery of reliable results. They also are pleased that they can leverage their in-house staff and take advantage of specialized services from the outsourcer when they cannot afford a narrow expertise. One study participant even stated, "The board applauds the improved reporting," demonstrating that F & A outsourcing's benefits can be appreciated at an organization's highest levels. Not all, not surprisingly, are completely satisfied with their outsourcing arrangements. Several study participants indicated that their outsourcers lack industry specific skills. Others noted that their service provider "lacked intuitive knowledge of our company and related operations." What Will Make It Work Better? Nearly half of all study participants said that they might hire an external sourcing advisor (lawyer, consultant, research firm) to assist their company with the F & A outsourcing process, while another 28 percent said they definitely would do so. These third-party advisors assist with the outsourcing lifecycle--from how it may fit into an overall business strategy to choosing a vendor, signing a contract and ultimately managing the deal. According to an earlier Ross Research study, the "value" that external sourcing advisors bring to the table can be expressed in a number of ways: time and money saved, clarifying objectives, risk mitigation, instilling in·still also in·stil tr.v. in·stilled, in·still·ing, in·stills also in·stils 1. To introduce by gradual, persistent efforts; implant: "Morality . . . a methodology to the outsourcing process (including tools and templates) and leveraging experience. As a result, these financial executives must believe that by using an external sourcing advisor, they would get a better overall contract. Hunton & Williams finds that customers are using more savvy and thoughtful deal processes to make sure that only the right vendors get selected, which ultimately leads to a more satisfying arrangement. "Old-fashioned planning, careful RFP (Request For Proposal) A document that invites a vendor to submit a bid for hardware, software and/or services. It may provide a general or very detailed specification of the system. 1. (business) RFP - Request for Proposal. 2. [request for proposal] construction and focus on value become more important than ever in assuring that the deals that get signed actually deliver what they promise," says Scott Hobby, one of the firm's outsourcing attorneys. The firm's attorneys often find themselves spending as much time thinking about the strategic elements of a transaction as the legal issues. How to Ensure Success Peer-to-peer recommendations about F & A outsourcing can serve as incredibly valuable sources of information. If you're considering outsourcing F & A or just are interested in "lessons learned," consider the advice given by several participants in our study. We asked them to share with us what they like/do not like about their F & A outsourcing experiences and offer advice as to how prospective buyers should capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. this opportunity (see comments in the table on the opposite page). Moving Forward The drive towards cost cutting and better financial reporting and regulatory compliance will force more chief financial officers than ever before to consider outsourcing finance and accounting (F & A) business functions in 2004 and beyond. Additional motivations include access to better technology and improved service levels. F & A outsourcing increasingly is being used as a tool not only for cost savings but also for business transformation. The industry is still in its early stages; yet, by all analyst accounts, and as shown by participants in this study, F & A outsourcing increasingly will become a more popular business and operational strategy for companies around the world. Many organizations clearly embrace F & A outsourcing as a strategy for improving service levels, reducing expenses, increasing stakeholder stakeholder n. a person having in his/her possession (holding) money or property in which he/she has no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property. value and gaining a greater competitive stronghold in their marketplaces. "Our experience is that companies should approach BPO outsourcing like one would approach a marriage." wrote one FEI respondent--"expensive to enter, more expensive if it ends in a divorce. To date, we are very pleased with our partner's performance and look forward to a long relationship." Nonetheless, many organizations have yet to acknowledge the inherent value in outsourcing transactional F & A functions to an external service provider. The word "transactional" is critical here: it would be difficult to find anyone who would advocate outsourcing highly strategic F & A processes. But outsourcing the transactional elements of F & A is not only a sound business decision but also one that should result in success--if researched, defined, contracted for and managed properly. The overall key to success, however, is building a strong, trusting relationship with a competent service provider that has deep process knowledge and is flexible enough to work within your industry's and company's constraints and guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. . To purchase a copy of the full 28page research report, click on www.rossresearch.com/pages/578762/index.htm.
Business Processes Expected to be Outsourced
Finance & Accounting 29%
Human Resources 29%
Other 22%
Customer Service/Call Center 21%
Logistics 16%
Marketing 16%
Procurement 15%
eLearning/Training 11%
Source: Ross Research and SBPOA, September 2003, from Ross Research
report titled: "BPO Buyer Demand Exposed: Buyers Reveal Their Readiness
to Purchase"
What ONE phase of the F & A outsourcing process do you feel is the most
difficult?
% of total # of Responses
Information Gathering 7% 7
Strategy Formation 9% 9
RFP/Provider Selection 3% 3
Negotiation/Agreements 11% 11
Transition/Implementation 41% 40
Ongoing Operations 21% 20
Internal Communications 1% 1
Exit or Re-negotiation 6% 6
Total Respondents 100% 97
Drivers for F & A Outsourcing (% of respondents)
Not At All Somewhat
Outsourcing Drivers Important Important Important
Access to better technology
and systems 13 10 28
Cost savings
(reduce and control operating costs) 5 13 21
Increase service levels 13 15 28
Ensure better compliance with
regulatory requirements 13 15 35
Improve inefficient internal processes 14 16 31
Lack of internal staff/capabilities 18 15 30
Improve business results/shareholder
ROI 6 13 30
Ability to take advantage of
offshore labor 69 15 5
Function difficult to manage/out
of control 46 21 16
Consolidation of F & A activities
across multiple divisions/locations 39 24 21
Very Extremely
Outsourcing Drivers Important Important
Access to better technology
and systems 37 13
Cost savings
(reduce and control operating costs) 35 26
Increase service levels 35 10
Ensure better compliance with
regulatory requirements 22 15
Improve inefficient internal processes 29 10
Lack of internal staff/capabilities 24 13
Improve business results/shareholder
ROI 27 24
Ability to take advantage of
offshore labor 10 1
Function difficult to manage/out
of control 13 4
Consolidation of F & A activities
across multiple divisions/locations 10 5
RELATED ARTICLE: The Research Methodology Of the 100 executives who filled out the questionnaire, which consisted of multiple choice and open-ended questions A closed-ended question is a form of question, which normally can be answered with a simple "yes/no" dichotomous question, a specific simple piece of information, or a selection from multiple choices (multiple-choice question), if one excludes such non-answer responses as dodging a , nearly all represent chief and senior financial decision-makers within their organizations. CFOs represent the largest number of participants, and nearly 70 percent of participants hold the responsibility of recommending their company's decision to outsource F & A functions. They work for companies ranging from fewer than 1,000 employees to more than 75,000, with the largest number having between 1,000-5,000 employees. A wide range of industries is represented, with a particular concentration in the manufacturing and business services sectors. Among these were: ING U.S. Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , Lillian Vernon Lillian Vernon Corporation is an American catalog merchant and online retailer that sells household, children's and fashion accessory products. In business since 1952 (when it was founded by housewife Lillian Hochberg out of her Mount Vernon, New York apartment; the business name Corp., Binney & Smith, Earle M. Jorgensen Co. and Solvay Pharmaceuticals. Ross Research is the only outsourcing-focused market research and advisory firm in the industry. Since 1999, it has provided the outsourcing vendor community with actionable intelligence Having the necessary information immediately available in order to deal with the situation at hand. With regard to call centers, it refers to agents having customer history and related product data available on screen before the call is taken. to get the most out of their business, marketing and sales initiatives. Ross Research focuses on four distinct topics and has deep expertise in each: Finance & Accounting Outsourcing, Human Resources (HR) Outsourcing, Offshore Outsourcing Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the product or service will be sold or consumed. and Sourcing Advisor Research. It publishes research reports on a monthly basis and provides custom consulting services--such as marketing strategy advisory, competitive intelligence, virtual analyst time, webcasts and onsite sessions--for outsourcing service providers and advisors. Its products and services are available via an annual subscription package or off the shelf. Clients include: Accenture, Caspian Group, EDS (Electronic Data Systems, Plano, TX, www.eds.com) Founded in 1962 by H. Ross Perot (independent candidate for the President of the U.S. in 1992), EDS is the largest outsourcing and data processing services organization in the country. , Extreme Networks, Exult, Fidelity Investments Fidelity Investments is a group of privately held companies in the financial services industry. It is made up by two independent but closely cooperating companies, Fidelity Management and Research Corporation (FMR Co. , HROToday Magazine, Hunton & Williams, International Data Corp. (IDC), IT Services & Marketing Association (ITSMA ITSMA Information Technology Services Marketing Association ITSMA Interactive Technology, Software and Media Association (India) ITSMA Inter-City Transportation Systems Management Authority ITSMA It Service Marketing Association ), Kennedy Information, Lexmark, McKesson HBOC HBOC HBO & Co of Georgia HBOC Hereditary Breast and Ovarian Cancer HBOC Hemoglobin-Based Oxygen Carrier HBOC Hawke's Bay Orienteering Club (New Zealand) HBOC Hunter Bird Observers Club HBOC Horse Breeders and Owners Conference , Mellon HR Solutions, Rockwell Automation Rockwell Automation NYSE: ROK is an industrial automation company. Its products include Allen-Bradley controls and engineered services and Rockwell Software factory management software. The company headquarters are located in Milwaukee, Wisconsin. , Shaw Pittman, Sybase, TPI (Tracks Per Inch) The measurement of the density of the storage channels on a disk or tape. Track density on magnetic disks has reached 125,000 tpi (125 Ktpi). See bpi, areal density and magnetic disk. , Williams Communications and Wipro Technologies Wipro Tech (NYSE: WIT) is an information technology service company established in India in 1980. It is the global IT services arm of Wipro Limited (in operation since 1945, incorporated 1946). . For details about Ross Research's services, publications or expert analyst team, visit the Web site at www.rossresearch.com or call 617.787.2580. RELATED ARTICLE: Comments From the Survey Participants Know what your costs will be. Know what your cost savings will be. Know what your human resource savings will be. Know what knowledge and history you will be giving up. Have someone "in house" that KNOWS the process and can identify mistakes, control costs and develop measurable metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. to monitor the outsourced service. Do one or two small projects first to get experience before giving up larger areas. Select a well regarded and established provider. Be sure that all those involved understand their individual responsibilities. Be prepared to spend more time than originally estimated to get the implementation done properly. Track the anticipated benefits to verify that you are getting what was expected. Thoroughly explore what the impact will be. Many people perform more than transaction processing Updating the appropriate database records as soon as a transaction (order, payment, etc.) is entered into the computer. It may also imply that confirmations are sent at the same time. Transaction processing systems are the backbone of an organization because they update constantly. , and once you terminate them, you still need resources to take care of problems and to staff projects. Companies considering F & A outsourcing should identify routine processes that are generic across all businesses. Those processes that involve a high degree of company-specific or industry-specific knowledge, or which require access to a company's intellectual property, are not good candidates for outsourcing. Thorough review of the processes and a very detailed service-level agreement (SLA (1) (StereoLithography Apparatus) See 3D printing. (2) (Service Level Agreement) A contract between the provider and the user that specifies the level of service expected during its term. ), which is measurable. The need to continue to own the processes via dedicated internal management is required. Ensure that you understand quality of service and how the provider will handle turnover on your account. Also, make sure that someone is clearly assigned to manage and oversee the service provider. Exult Inc. is a market leader in HR-led business process outsourcing for Global 500 corporations, with U.S. headquarters in Irvine, Calif., European headquarters in London and client service centers in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. , Europe and Asia. Through its proprietary Exult Service Delivery Model[SM], Exult offers comprehensive, scalable process management solutions designed to manage clients' Human Resource and related Finance & Accounting and Procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. functions. Exult uses its expertise in HR and F & A functions, process management, MultiDelivery[SM] shared client service centers and its myHR[SM] Web-enabled applications to help Global 500 corporations improve productivity, reduce costs, streamline processes and provide superior HR services to their employees. For more information, visit Exult's Web site at www.exult.net. Hunton & Williams LLP LLP - Lower Layer Protocol is a U.S. law firm, founded in 1901, with a significant international presence. More than 850 attorneys serve clients in 80 countries from 17 offices around the world. The Outsourcing/System Integration Practice Group at Hunton & Williams assists its clients worldwide in executing large-scale BPO and ITO Ito, city (1990 pop. 71,223), Shizuoka prefecture, central Honshu, Japan, on the Izu Peninsula and the Sagami Sea. It is an important fishing port and hot spring resort. See indium. [information technology outsourcing Information Technology Outsoucing or ITO is a company's outsourcing of computer or Internet related work, such as programming, to other companies. It is used in refence to Business Process Outsourcing or BPO, which is the outsourcing of the work that does not require so much ] transactions, ASP [application service provider] arrangements, system integrations and voice and data network procurements. Over the past 20 years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time group has completed dozens of transactions for the world's largest utility, consumer products, aerospace, technology, insurance, financial services and other companies. The firm says, "We understand our clients' demands for integrated solutions that quickly deliver reduced costs, improved performance and process transformation while maintaining core business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . We share our experience in achieving these goals at every stage of each new deal, from pre-RFP planning through post-contract relationship management." For more information, visit the Hunton & Williams Web site at www.hunton.com, or contact: Scott M. Hobby, 404.888.4263, shobby@hunton.com; or Randall S Randall may refer to the following: In places:
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