Finance & Accounting Outsourcing
The business world has finally understood the power of outsourcing. This is evident from the buzz we hear about the recent phenomenon of Information Technology (IT) Outsourcing (ITO). Studies indicate that more than 80 percent of the companies in US either outsourcing now or planning to outsourcing IT.
Now comes the second wave in outsourcing. Leading the pack is Finance & Accounting Outsourcing (FAO) and Human Resources Outsourcing.
Traditionally Finance & Accounting has always been considered a cost center. Not any more. The Controllers and Chief Financial Officers are asked to participate in the overall organizational goal of reducing costs/increasing the margins. We have to give some credit to the F&A folks. Historically, large sized organizations have come to realize that there are efficiencies in sharing certain activities with a shared services organizations (could be internal or external). This is the precursor to the new FAO paradigm.
With the advent of internet and high-speed communications the need for outsourcing activities/processes within a limited geographical area is no longer a necessity. Enter offshoring. Thanks to Thomas L. Friedman, we have a new realization that the world is flat !.
Countries like India have not only modern IT infrastructure but talented Finance & Accounting resources. India has a rich tradition of Finance & Accounting. There are two distinct branches within the Accounting field. One deals with accounting- principles, standards, regulatory requirements. This is controlled and maintained by the Institute of Chartered Accountants of India (equivalent of AICPA in USA). Another deals with the very specific aspect of Cost Accounting, which is controlled and maintained by Institute of Cost and Works Accountants Of India.
Now back to FAO. The outsourcing activity can be considered at multiple levels. It could range from simply outsourcing transactions (e.g. Accounts Payable Invoice entry) to the entire business flows (e.g. Procure to Pay). The benefits the CFO and Controller derives from FAO is in direct proportion to the effort and complexity of what is being outsourced.
In the past years the outsourcing vendors focused on low hanging fruit viz., transaction processing. They usually were too small to handle larger and complex Finance & Accounting outsourcing needs or coming from IT outsourcing. The current crop of vendors are picking and choosing their core competency like FAO, HRO etc. Further they take a holistic view of the outsourcing problem and attempt to provide a comprehensive set of services. The advantages to this approach is that the customers have to deal with only one vendor and can incrementally outsource more activities as the need arises. This reduces the exposure that is associated with outsourcing too much too soon.
The newest paradigm in FAO is to provide is to extend the current set of capabilities to include Business Analytics (e.g. Executive Dashboard, Enterprise Planning and Budgeting, Procurement Analysis, Payable Analysis, Spend Management etc.) along with Application Management.
Certain large sized customers have realized that that IT is not their core competency. Rather
they will focus on activities that add to their bottom-line and let some one else handle non-core activities. This assumes that the outsourcer can perform these activities better and cheaper than in-house IT team. Combine this with FAO, you can potentially outsource not only the transaction but the entire application AND the IT management to a capabale third party. The advantage of this model is that:
The business world has finally understood the power of outsourcing. This is evident from the buzz we hear about the recent phenomenon of Information Technology (IT) Outsourcing (ITO). Studies indicate that more than 80 percent of the companies in US either outsourcing now or planning to outsourcing IT.
Now comes the second wave in outsourcing. Leading the pack is Finance & Accounting Outsourcing (FAO) and Human Resources Outsourcing.
Traditionally Finance & Accounting has always been considered a cost center. Not any more. The Controllers and Chief Financial Officers are asked to participate in the overall organizational goal of reducing costs/increasing the margins. We have to give some credit to the F&A folks. Historically, large sized organizations have come to realize that there are efficiencies in sharing certain activities with a shared services organizations (could be internal or external). This is the precursor to the new FAO paradigm.
With the advent of internet and high-speed communications the need for outsourcing activities/processes within a limited geographical area is no longer a necessity. Enter offshoring. Thanks to Thomas L. Friedman, we have a new realization that the world is flat !.
Countries like India have not only modern IT infrastructure but talented Finance & Accounting resources. India has a rich tradition of Finance & Accounting. There are two distinct branches within the Accounting field. One deals with accounting- principles, standards, regulatory requirements. This is controlled and maintained by the Institute of Chartered Accountants of India (equivalent of AICPA in USA). Another deals with the very specific aspect of Cost Accounting, which is controlled and maintained by Institute of Cost and Works Accountants Of India.
Now back to FAO. The outsourcing activity can be considered at multiple levels. It could range from simply outsourcing transactions (e.g. Accounts Payable Invoice entry) to the entire business flows (e.g. Procure to Pay). The benefits the CFO and Controller derives from FAO is in direct proportion to the effort and complexity of what is being outsourced.
In the past years the outsourcing vendors focused on low hanging fruit viz., transaction processing. They usually were too small to handle larger and complex Finance & Accounting outsourcing needs or coming from IT outsourcing. The current crop of vendors are picking and choosing their core competency like FAO, HRO etc. Further they take a holistic view of the outsourcing problem and attempt to provide a comprehensive set of services. The advantages to this approach is that the customers have to deal with only one vendor and can incrementally outsource more activities as the need arises. This reduces the exposure that is associated with outsourcing too much too soon.
The newest paradigm in FAO is to provide is to extend the current set of capabilities to include Business Analytics (e.g. Executive Dashboard, Enterprise Planning and Budgeting, Procurement Analysis, Payable Analysis, Spend Management etc.) along with Application Management.
Certain large sized customers have realized that that IT is not their core competency. Rather
they will focus on activities that add to their bottom-line and let some one else handle non-core activities. This assumes that the outsourcer can perform these activities better and cheaper than in-house IT team. Combine this with FAO, you can potentially outsource not only the transaction but the entire application AND the IT management to a capabale third party. The advantage of this model is that:
- you are dealing with a single vendor, who knows your business process as well as the application and IT system
- the outsourcing vendor can constantly optimize and fine tune your business processes to meet industry standards
- the outsourcing vendor can provide expertize in IT management. A vendor that is focused on certain Hardware/Software/ERP platform can provide this service bettter than your in-house team.
- as a CFO/Controller you focus on what is important to run your business. Your additional requirements to manage the applications is with experts
- as a CIO/CTO you are assured that the system is being maintained by experts who clearly understands your Hardware/Software needs.
- Your outsourcer meets your varying needs by providing appropriate talent- done transparently
posted by Ravichandran at 1:42 PM
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