Will Outsourcing and Technology Kill Finance?

At a recent CFO Innovation roundtable discussion, one panelist counseled caution in outsourcing finance processes, whether to an in-house Shared Services Centre (SSC) or a third-party Business Process Outsourcing (BPO) provider.  
 
“How can you have a pool of talent to train up if most members of your finance team are in another organisation or employed by another company?” she wondered. “And how can you make sure that those who remain in the retained finance function have really mastered what finance is supposed to do, since many of the activities are done in the SSC or BPO provider?”    
 
It’s a conundrum that is attracting the attention of finance-function watchers, if you like, such as the Association of Chartered Certified Accountants (ACCA), for example. In a recently released white paper, The Future of Finance, the ACCA examined several trends that it believes “could affect finance talent management in the future” of global finance functions.
 
Finance and accounting outsourcing is one of them. “With fewer mid-level finance professionals in the retained finance organisation, the normal trajectory of promotion may change, with fewer finance veterans coming up through the ranks,” observe report writers Deborah Kops, Founder and Managing Principal of consultancy Sourcing Change, and ACCA Head of Corporate Sector Jamie Lyon. “As a result,” they warn, “the talent pool for leadership positions could be restricted.”
 
The ACCA report focuses on seven trends, of which the first four are probably the most relevant to finance professionals in Asia:
 
  • Rise of finance ‘super delivery’ hubs
  • Shift to capability, not just cost, as key driver of finance’s locational strategy
  • ‘Hollowing out’ of the finance workforce
  • Implementation of ‘revolutionising’ technology and robotic software
  • Higher expectations of finance
  • Emergence of global business services
  • Push towards global workforce planning
 
Chennai, Manila or Singapore?
“The choices of preferred locations for transactional finance operations are now narrowing from particular countries to specific cities,” the ACCA report notes. “With increasing scale, these ‘super delivery hubs,’ specializing in transactional finance processes, could command a ‘brand’ as good places to build a career, especially at the entry level, attracting finance talent – just as good companies are magnets for talent.”
 
The report makes special mention of Manila in the Philippines and Chennai in India as two cities in Asia where finance professionals may congregate – it’s no coincidence that these cities are in populous countries with young populations. The Philippines is also part of the ten-nation ASEAN, which will form the ASEAN Economic Community in 2015. The common market will allow finance professionals from member countries, which include Indonesia, Malaysia, Thailand and Vietnam, to work anywhere within ASEAN.
 
Singapore is also a member of ASEAN, though the city is not specifically mentioned in the ACCA report. It may emerge as a hub anyway, despite its high cost structure, which work against it becoming a transactional centre, and small population (5 million Singaporeans versus 95 million Filipinos and 1 billion Indians).
 
What Singapore has is a proactive government that recently passed a law creating the Singapore Accountancy Commission (SAC), a statutory body whose remit is “to transform Singapore into a leading global accountancy hub for the Asia-Pacific region by 2020.” As part of its advocacy, the SAC is backing ‘for practitioners, by practitioners’ initiatives such as the Singapore CFO Institute, the Asia Centre of Excellence for Internal Audit, and the Asia Pacific Business Valuation Institute, which aim to equip finance professionals in Singapore with value-added expertise, knowledge and exchange of ideas.
 
It remains to be seen whether the Singaporean ‘build-it-and-they-will-come’ model will indeed make Singapore an accountancy hub, and therefore make it a prime location for global companies to hunt for finance talent. For that matter, ACCA’s thesis that Manila and Chennai can become super delivery hubs and therefore a source of top talent remains to be proved as well.
 
Still, according to the report, these hubs “could be effective in attracting the right kind of finance talent, lowering risk, and potentially serving as hubs for finance service innovation.” This development, in turn, may result in the finance career proposition becoming “location-sensitive,” as organisations “look closely at the capability profiles in certain locations, matching skills to work, and source and invest in senior talent in locations that they view as key talent pools.
 
Hollowed Workforce
The ACCA sees a downside for finance, however. If outsourcing reduces the company’s pool of potential talent for leadership roles, “this may put pressure on leadership to ‘up-skill’ more junior talent quickly, but these people may have not had the benefit of ‘time in grade,’” Kops and Lyon reckon.
 
“Future talent pools may bring less practical experience to the table,” they add. “Inability to provide sufficient coaching and mentoring may increase, and difficulties may arise in transferring knowledge.”
 
There are already 24-year-olds in India and Malaysia assuming job responsibilities that it took baby boomers in the West 20 years or more to learn, the report observes. Finance organisations should therefore be ready “to make more targeted and more effective interventions to equip a younger, less experienced generation of finance professionals quickly with the management skills and tacit knowledge they require.”
 
“It can be an issue,” concedes Robert Krakauer, CFO of Aspect Software in the US. The company, which develops customer contact and workforce optimization software for enterprises in 70 countries, has a Shared Services Centre in Ireland established five years ago that takes care of aspects of financial management for international operations, including transactional services. It also has a third-party BPO services provider in India.
 
Stocking the Talent Pool
While the finance specialists in India are effectively outside of the finance team’s talent pool, the 25 or so finance team members are not entirely out of it because Aspect’s international controller is based in the Irish SSC. Krakauer also makes a conscious effort to keep the SSC staff in the loop. But he concedes that constant communications and training can do only so much. “People are not always willing to change geographies [to open themselves to leadership roles],” he says.
 
But some companies that have done outsourcing for a long time seem to have adjusted well enough. IBM’s finance organisation in ASEAN set up an SSC in Kuala Lumpur in the 1990s. It is now the regional centre for the entire Asia Pacific, with its remit expanded from accounting to finance management functions.
 
Clive Lim was IBM ASEAN CFO in 2011 when he spoke to CFO Innovation (he has since been rotated to another assignment). “If we see someone [in the SSC] has potential, we move them to [regional headquarters in] Singapore so we can groom them,” he said. “One of those we moved now runs finance in our services business in Asia Pacific.” The Malaysia CFO at the time used to run close to half of the accounting process in the Kuala Lumpur SSC.
 
The ACCA concedes that the “profound” disconnect driven by shifting workforce demographics is probably “short-term” as enterprises adjust to the finance outsourcing model as IBM has done. In the interim, though, finance should think about the wide range of career development implications and how to ensure the SSC staff remains part of the retained finance function’s talent pool.
 
An Alternative Future
The ACCA report also looked at technology and how it may shift the finance talent calculus in an entirely different direction.
 
“The finance function is now more closely evaluating technology that has been around for some time, including integrated invoicing and payment tools, more evolved workflow applications and so called ‘robotic’ technology,” ACCA notes. “If these applications find wider adoption, the retained finance team, and finance embedded in the business will be significantly affected.”
 
One possible consequence may be the elimination of finance shared service centres or outsourcing as companies rely more heavily on technology rather than people. “More evolved technologies could further reduce the need for exception processing, reducing transaction finance teams to a handful of people,” the ACCA speculates. “Even now, there is some evidence of existing technology investment that, if redirected, could drive more significant gains.”
 
This will further reduce the size of the finance talent pool and radically alter the mission and expectations of finance professionals, the report writers argue.  
 
“Within a more automated control environment, the retained finance team could further evolve from subject matter expert to business partner,” they write. “Business processes may further devolve to the end-user, elevating finance’s role from manager of finance processes across the organisation to the provider of business insights.”
 
This is, of course, blue-sky thinking (or a frightening dystopian scenario, depending on how you look at it). It may never happen. After all, the accounting profession has been with us since the Sumerians started recording transactions on stone and clay tablets more than 5,000 years ago.
 
But changes are indeed afoot. Finance functions, particularly in global organisations, should start thinking about the impact on talent development and succession planning as outsourcing and technology transform financial management – and should be ready to effectively respond to the new challenges.
 
About the Author

Cesar Bacani is Editor-in-Chief of CFO Innovation.  

 

Photo credit: Shutterstock.com

 

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