Global spending on finance and accounting business process outsourcing (F&A BPO) services will exceed $25 billion in 2013 and rise at an annual compound growth rate of 8 percent through 2017, according to research by accounting firm KPMG and HfS Research.
More than 100 enterprise-level F&A BPO engagements are expected to be signed this year, which includes a review of 399 major global enterprises, 745 financial and accounting deals, and 17 leading services suppliers.
The report, Finance and Accounting BPO Market Landscape, 2013: Market Evaluation, Forecast and Competitive Analysis, found that key market dynamics fueling global growth include:
Proven performance: 90 percent of F&A BPO engagements have been consistently meeting their cost-reduction targets and initial delivery performance, making it difficult for finance leaders to avoid evaluating its potential.
Desire to reduce costs and standardize processes: Enterprises overwhelmingly want to look at new ways to take advantage of lower-cost operations and standardized financial processes, where there is little competitive differentiation to be achieved by operating in-house.
The lethargy of the 2008-2010 recession has slowly lifted: More enterprise leaders are now looking at more radical strategies to increase productivity and global business effectiveness. Recent activity shows an increasing number of enterprises getting more aggressive with globalizing their finance operating models to include outsourcing services.
Ron Walker, a partner with KPMG and the F&A service line leader for KPMG's Shared Services and Outsourcing Advisory practice, said in a press release",F&A BPO needs to be viewed as an extension to an enterprise's capabilities, not a substitute."
The goal, he said, is to help clients "toward a global business services framework that optimizes the mix of human capital, service delivery models, process innovation, and technology to deliver services on an enterprise-wide, cross-functional basis to support the business strategy."
The KPMG shows that Accenture, IBM, Capgemini, and Genpact control two-thirds of the financial and accounting BPO market. Accenture has a 29.6 percent share, IBM has a 14.7 percent market share; Capgemini is at 10.6 percent, and Genpact has 10.2 percent of the market. After that, no other company has more than a 5.4 percent share.
According to the report, the BPO market is ripe for consolidation, as there are too many providers chasing too few deals, which means that firms that want to break into the leading tier will need to consider acquisitions.
In addition, there is increasing competition for top employees, so "providers need to invest in consultative talent. In order to increase more sole-source opportunities and open up more client conversations, many of the providers need to recruit F&A experts who can engage in strategic conversation with enterprise executives", the report states.
Phil Fersht , CEO of HfS Research and a coauthor of the research report, said",Too many enterprise leaders are approaching F&A BPO with a myopic vision to reduce costs and mitigate risks. They are kicking the can down the road by failing to invest in better technology platforms, analytics capability, and an innovation road map. They should be approaching the F&A BPO as an opportunity to invest in their firms' futures."