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Ask FERF about ... sourcing financial operations.

Market forces are pressuring companies to provide year-over-year revenue growth and profitability improvements, while increasing the predictability of revenue and profit forecasts. Financial executives also face additional regulatory scrutiny and increasing responsibilities as a result of Sarbanes-Oxley and increasing demands to manage complex financial operations and implement strategic projects. All of this comes at a time when finding and retaining reliable financial and accounting professionals is increasingly challenging.

As a result, CFOs and other financial executives are taking a hard look at how to optimize their financial operations, asking such questions as:

* Should we consolidate financial operations in-house and develop shared-service centers?

* Should we outsource or off-shore some or all of these operations? and

* Do we need to augment finance staff during operational and transactional peaks to assist with time-sensitive, critical financial work?

Financial Executives Research Foundation (FERF) has just begun a research project on "Sourcing for Financial Executives," and has found a few resources that may help answer these questions.

Book: Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility. (Cohen and Young, 2006: Harvard Business School Press)

The authors, Linda Cohen, managing vice president, and Allie Young, vice president, both at Gartner Research, argue that selecting the right sources for business services, whether internal or external, must be an integral part of enterprise strategy. They call this approach "multisourcing," which they define as "the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals."

Cohen and Young provide four key themes for successful multisourcing:

* You must have a strategy.

* Multisourcing governance is the single most important factor in determining success.

* Multisourcing is built on a network of relationships -- not transactions.

* Multisourcing requires creating measures that matter.

Study: Finance Shared Services and Outsourcing: Magical, Mythical or Mundane? (IBM Business Consulting Services, 2005)

The IBM Institute for Business Value, in cooperation with the Economist Intelligence Unit, conducted a survey of 210 senior finance professionals from 45 countries. Based on this survey, it recommends three sourcing strategies:

* Build in balance -- Implement a three-tiered organizational model for finance, designed to provide both stability and flexibility:

The top tier, Business Unit Finance, focuses on driving profitable growth.

The middle tier, Central Finance, balances risk and performance.

The bottom tier, a combination of shared services and outsourced activities, helps manage complexity through automated reporting and efficient transaction processing.

* Think globally, but execute globally and locally -- Leading companies set standards globally, then work closely with local leaders to address valid deviations.

* Blend approaches for faster results -- Accelerate the transformation through a combination of outsourcing and shared services.

Report: Achieving World-Class Business Process Operations: A Comparison of Outsourcing and Shared Services. (Kathleen Brumme, Hewlett-Packard Development Co, LP, 2005)

Brumme provides an analytical framework for the "make" (captive shared-services center) versus "buy" (outsourcing providers) sourcing decision. This framework is segmented into three categories: operating model, business focus and risk and controls.

Operating Model: Organizations that use shared-services centers do not generally charge market prices, so are seldom able to reinvest "profits." Outsourcing providers can reinvest their profits in their core business, optimizing business process operations.

Business Focus: Shared-services centers are often considered to be "back office/overhead" functions, and therefore not a core business. At outsourcing providers, back-office functions are the core business, so they can focus their full attention and resources on delivering cost and service-level improvements.

Risk and Controls. Shared-services centers may lack expertise on how to migrate processes without disrupting the business. Companies may perceive that they lose control when using an outsourcing provider, but much of that risk can be mitigated through proper governance and business control structures.

As part of its research project, FERF would like to interview members who have thought through the "make" versus "buy" sourcing decision. Please contact William Sinnett at

William M. Sinnett ( is Director of Research at Financial Executives Research Foundation (FERF).

contributed by FERF
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Title Annotation:resources
Author:Sinnett, William M.
Publication:Financial Executive
Date:Nov 1, 2006
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