This continues a series of guest columns from practitioners and bloggers I respect. The category - The Real Deal describes them well.
I thought it was interesting that the term "shared services" made it back in to IBM lingo a couple of weeks ago. When I was at PwC (now IBM) in London in 1989 we were already looking at hairy, cross-border issues around employment and record keeping laws for potential shared services for clients like BP. Things have evolved so much since that we now have "super shared services" run externally by BPO providers.
Phil Fersht is VP, Research at the Everest Research Institute, where he follows BPO Markets. Everest is an Outsourcing focused advisory firm. Before Everest, Phil held various analyst positions at Yankee Group, NelsonHall and IDC. Here's his take on BPO around Finance and Accounting:
"The outsourcing of multiple Finance and Accounting (F&A) processes to a third party supplier, has been going on for 15 years, ever since BP divested the running of its North Sea oil F&A transactional process to Accenture. Since that time, we have witnessed close to 150 Global 2000 organizations sign contracts with outsourcing providers that have all involved multiple core accounting processes being managed under a single contract which is greater than three years’ in length. Half of these contracts have been signed in the last 18 months, with over 30% growth in F&A Outsourcing this year, and even stronger growth expected over the next year and beyond.
The industry’s early years began slowly, with many senior finance leaders nervous about placing their day-to-day processes (mainly the accounts payable and accounts receivable functions) under the management of a separate provider. As a result, well over half of large-scale financial services, telecom and utilities/energy firms implemented their own “shared services” or captive F&A support operations, where they took advantages of low-cost near-shore and offshore resources, and the synergies of having a centralized provision of services across the organization. The emotional closeness of F&A processes to these organizations (for example billing to telecoms firms, and the order-to-cash cycle for banks) has caused many of them to retain control over their F&A services. This is now changing, with the development of mature F&A offerings from global business and IT services providers such as Accenture, IBM, Genpact, HP, ACS and Cap Gemini, who have the capability to deploy the operational, consulting and technology expertise and services necessary to offer cost savings well in excess of 50% of administrative F&A costs. Moreover, we are also witnessing the emergence of specialist F&A outsourcing suppliers, such as the emerging Indian suppliers Progeon (Infosys), WNS and Intelenet, who are aggressively targeting firms looking to take quick advantage of significant cost savings offered by offshore labor arbitrage. The consumer goods and retail sectors are fast emerging as the hottest industries to adopt full-scope F&A Outsourcing, with P&G, Unilever and Colgate-Palmolive as major pioneers moving quickly towards a fully-outsourced model for their transactional F&A services, while focusing existing finance personnel on more strategic processes, namely budgeting, risk management and management reporting.
Many companies which initially went down this shared services path are now looking to move onto a fully-outsourced model, where all the transactional F&A services are delivered from the outsourcing suppliers’ staff and facilities. With issues like Sarbox compliance no longer a barrier and permission to offshore becoming widely accepted, there seems little point in persisting in a shared services strategy when global outsourcers can take on the headaches of labor attrition and IT maintenance, and deliver the identical services back to the customer at much lower cost due to their economies of scale.
The next phase will see the bundling of F&A technology services with the F&A processes to reduce costs even further and create efficiencies of scale and data access that can impact to the top-line for the outsourcing buyer, not just the bottom-line."
Phil can be emailed at [email protected]