Finance and Accounting Outsourcing Lags; New Technology May Spur Growth
On shore shared-service centers have taken the lead in performing finance and accounting processes, according to a recent study published by the Hackett Group, a strategic advisory firm, with 58 percent of the companies surveyed using the shared services model, globalservicesmedia.com reports. Only seven percent of companies relied on offshore shared-services centers. Twenty-seven percent of financial processes are still performed in-house or in some decentralized manner, according to the study. Experts blame the lack of interest in finance and accounting outsourcing on technology that has not brought enough value in the form of opportunities to leverage financial information for business purposes and contracts that did not include technical assistance, according to a separate report in globalservicesmedia.com.
Phil Fersht and Sonal Singla, writing for the Everest Group in globalservicesmedia.com, an outsourcing services consulting firm, acknowledge that early finance and accounting outsourcing (FAO) projects were focused on moving the process offshore for cost reasons. Providers did not bundle technology solutions or provide value options for the buyer so that they could incorporate their outsourced process with other business processes.
Most early adopters of FAO, large global firms, chose to keep ownership and support of their existing finance and accounting systems, and Fersht and Singla expect few to move to an outsourcer’s platform because of issues relating to their systems’ complexity and to compliance, initial cost and loss of control. New business for outsourcing providers will likely come from mid-sized buyers and companies with a history of mergers and acquisitions.
Customers will look for technology that is “additive not disruptive”, Fersht and Singla say, that bundles FAO services with IT services. Buyers will look to manage their business process across customers, providers and third-party outsourcers’ applications, and are likely to adopt Web services such as “customer setup", “deduction calculation” or “create invoice”.
While technology that will enable providers to offer genuine one-to-many FAO products will be years in the making, some providers are developing “pockets of utility" across several industry-specific accounting processes (for example, procure-to-pay processes specific to hospitals), according to Fersht and Singla. Other developments, which will permit application of finance and accounting information to Sarbanes-Oxley compliance, for example, will require Order to Cash (O2C) engines and workflow and document management tools.
More than 65 percent of companies in the Hackett Group study are leveraging the shared services model for their business processes. While these companies expect outsourcing of FAO processes to grow at a modest rate to 9 percent of the market and offshore service center processing to increase to 13 percent, most expect the shared services model to continue to dominate the market.
The Hackett Group study found that 60 percent of the respondents were concerned about risk from accounting and finance outsourcing. Compliance and control were seen as the most significant risks, followed by security and culture, globalservicesmedia.com reports.