Long Day's Journey Into Finance Outsourcing

I’m a member of the LinkedIn group Finance & Accounting Shared Services/Outsourcing. Another member recently posed this question: Which areas should you begin your finance and accounting outsourcing journey? The responses by business process outsourcing providers, consultants and actual users make for interesting reading.

 
The first thing you should know is that it will apparently take a long time to complete the entire outsourcing process. Anand Pvrk, head of BPO Operations at Spanish trust and fiduciary services provider Amicorp India Management, estimates the time that will be needed at nearly five years, in part because outsourcing finance and accounting should be done in stages, each one requiring a period of stabilisation and another period of process improvements.
 
Five-Year Journey?
The typical journey for finance and accounting outsourcing, Pvrk wrote, begins with rule-based processes such as account payables and account receivables (excluding collections). Companies can expect delivery of outsourced services to stabilise in six to eight months, after which process improvements can be made in another six-to-seven month period. The total time: 15 months.    
 
After that, the company can start transitioning general ledger processes, collections, financial accounting and close processes. You can expect delivery of outsourcing services to stabilise within eight to 12 months, and then process improvements can be made during another six-month period. Total time: 18 months.
 
Finally, the company can turn to transition financial planning and analysis and related processes. He estimates the period for stabilisation for these higher level processes at 12 to 15 months. After that, process improvements may need another six to eight months. Total time for FP&A: 23 months. In all, the outsourcing journey can take 56 months.
 
Or more than that. “I agree with all the points,” wrote Shakeeb Husain of Indian BPO provider Caliber Point Business Solutions, except that “typically it would take much longer.” Don’t forget that you may need to undertake business process re-engineering (BPR) before actually outsourcing, and this can take several months as well.
 
“You would be able to provide value-add [with BPR] by ensuring all processes lead to operational efficiency and also [take] comfort [in the knowledge] that when the processes are outsourced, they are actually 100% error free,” wrote another member, Madhu Rao, senior controller at Pierian Services, an Indian provider of finance and accounting, HR, payroll and associated business support services.
 
Shortening the Process
But the finance outsourcing journey can be considerably shorter, depending on the complexity and objectives of the company. “Although I would agree the transactional processes tend to be the starting points, companies under significant cost pressures may look at potentially larger and more expensive processes (or take on larger groups of processes) to help move the cost dial more quickly,” commented Jason Pikoos, Director, Advisory Services, at KPMG Peat Warwick in the U.S.
 
“I am commonly seeing companies looking at finance in a broader fashion,” he added, “examining all areas of finance for outsourcing opportunities, then sequencing the process based on a variety of drivers – process complexity, process stability, process risk, expected changes in the near future (e.g. new system being implemented), need for speed, etc.”
 
Indeed, wrote Adam Dearnley, commercial finance manager in the U.K. for marketing consultant dunnhumby, “sometimes outsourcing is used to address knowledge gaps in complex areas, e.g. expat payroll, compliance in a new market. This is very relevant to fast growing companies.” In other words, you don’t have to start with A/P and A/R, although these high-volume transactions would be the priority if your goal is to cut costs.
 
“The first areas should be ones that require a certain expertise that your staff may not have,” agreed Michael VanderGoot, forensic lease auditor and senior compliance officer at BC Compliance Group, in the U.S. “The next areas to look at are [those] that initially do not require any cost [such as] commercial lease audit and contract compliance . . . In a time-constrained work environment, invoices based on contracts are merely checked to be sure the math is correct and that the number of units received is the number of units billed. Having a third party review these costs on a benefit-share arrangement frees up the existing accounting staff to perform other duties more efficiently.”
 
Speaking of costs, Ravin Jayaraman, GM in India at Laserwords, a U.S. software provider of customised electronic publishing solutions, reiterated what many BPO providers and consultants often assert. “The industry has definitely matured from being cost-driven and being mere labour arbitrage to a higher plane, where process improvements have brought in improvement in efficiency,” he commented. “One of the main advantages of outsourcing is the expertise that one gets from this opportunity.”
 
Basic Matters
Walter Belderbos is former CFO (Europe and Asia) at A. Schulman International Services, a supplier of high-performance plastic compounds and resin. “I would never outsource never outsource any process that is not working properly,” he advised. “Do not outsource any defunct process and make sure processes are fully understood by all stakeholders and fully documented.” (This does not apply, of course, to specialised processes that the company does not have expertise in, such as expat payroll, that it is outsourcing precisely because it doesn’t have the expertise.)
 
“I totally agree,” said senior controller Rao. “In my experience, I have seen quite a few outsourcing activities failing due to this reason. In my opinion, if an organisation intends to outsource, it should first get a BPR done and identify gaps and respective resolutions. Thereafter identify the service provider to whom the organisation intends to outsource and discuss with them the BPR, get their sign-off and then outsource. Alternatively, if the service provider is competent to perform BPR, the same could be assigned to them so that the responsibility and accountability on the service provider is fixed to a greater extent.”
 
William Lennon, CEO and founder of U.S. BPO provider GroupBDO, took exception to some of Rao’s points. If a company spends time and resources fixing processes before outsourcing them, he wondered, why outsource at all? “I believe you can lift and fix simultaneously,” he said, apparently suggesting that it is the BPO company that should do the business process re-engineering.
 
But Belderbos has a caveat about this approach. Whatever the re-engineering route you choose, warned the former CFO, “the company needs to be in the driver's seat, not the outsourcing partner.” If you don’t know the ins and outs of a process, “you will end up with deliverables defined by the outsourcing company [and] these deliverables will not necessarily fit your organisation's requirements.”
 
Another apparent BPO end user, Ramessh Krisnan, who is head of global travel and expenses based in Beijing for telecom equipment maker Ericsson, also struck a cautious note. “I think it is very important to first focus on areas that are working well internally as potential areas for outsourcing and also be clear on the reasons for outsourcing,” he wrote. “The advantage in this approach is that the service recipient will be in control and hence can demand quality services at the right price from the service provider.”
 
Krisnan’s is the last entry in this conversation about outsourcing finance and accounting, which so far has 18 comments. I’m hoping there will be more.
 
About the Author

Cesar Bacani is senior consulting editor at CFO Innovation.   

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