June 4th, 2009
Accounting for success? Darwin meets the green eyeshade world…
Have you really looked at your options for finance & accounting lately?
BPO (business process outsourcing) for Finance and Accounting has been going on for a time. The industry owes some part of its success to the shared services efforts of larger firms. When businesses created shared services facilities, they standardized, among other things, their finance and accounting systems and processes. In my career, I helped many, many global enterprises consolidate their numerous, diverse accounting solutions and data centers to one, shared operation.
In creating these centers, businesses designed new finance and accounting (F&A) processes that were a step change improvement in cost, efficiency and effectiveness. They often sped up the time to close the books, reduce errors (and the cost of correcting accounting errors), and improved the consistency in processing that delights internal and external auditors.
After hundreds and hundreds of shared service operations were established, some businesses moved these facilities to lower cost countries. Ireland and some Eastern European countries were the original beneficiaries of this trend. Indian and China came next.
These ‘captive’ shared service facilities then became material assets of their corporate owners. At different times, many of these operations were sold to outsourcing firms. GE spun their operation out and we now know this operation as GenPact. GenPact took F&A outsourcing up a notch and recruited/trained scores of process black belts to improve the performance of F&A processes.
So, where do businesses go today? What do mid-size or smaller firms do?
Small firms have often utilized contract accounting services that are often provided by CPA firms. For low volume, small businesses, this approach has been cost-effective and lower risk than in-house solutions. Mid-sized businesses haven’t had as many options. They are often forced to acquire expensive, on-premise accounting software and hire a large staff to do the necessary F&A work. These mid-market firms are often too small to attract the attention of larger F&A BPO providers and too large for local, CPA-based accounting service providers.
The Cloud may change that – the cloud and a firm like Corefino.
In prior evolutionary cycles, companies had to license their F&A applications from software vendors. They also had to acquire an F&A staff. The very best expertise was only available to the largest firms and those with the money to pay for it. Again, mid-market firms were often squeezed.
SaaS and Cloud phenomena can change that. These can put world-class F&A technology on the web, secure the data, etc. and make it accessible to businesses globally no matter what size firm they are. This new generation of technology also permits firms like Corefino to offer SaaS (software as a service) accounting software along with trained accounting professionals. The combination of great talent and software reduces the capital outlay and personnel headaches that many F&A Controllers and CFOs face.
The attraction of this type of solution could be compelling. Few F&A operations are strategic. Accounts Payable, Accounts Receivable, Fixed Assets, etc. are rarely strategic. Tactical functions are often good candidates for outsourcing. If an outsourcer provides the software (instead of just operating the client’s licensed software) and the people who will use it, the value proposition gets more interesting, especially for mid-market firms. Certain strategic F&A activities (e.g., strategic acquisitions, capital financing, etc.) will not be outsourced but for the basic, non-differentiated activities (e.g., bill paying), outsourcing could be the norm.
The decisions for Controllers and CFOs today are varied:
- License software, hire and train an internal F&A staff and develop all manner of policies, controls and procedures on your own nickel. This approach has a high upfront capital cost, high audit costs, many personnel issues and lots of recurring costs in the form of needed hardware upgrades, software maintenance fees, periodic software patches and re-implementations. This option does keep the data and systems entirely within the company.
- Transfer the systems of one’s F&A environment to an outsourcer to operate. The outsourcer assumes responsibility for maintaining and running the software but may do little more.
- Transfer the systems and some personnel to an F&A BPO firm. These companies may deliver an immediate step-change improvement in business processes and/or systems. This solution is great, short-term, for those firms with grossly inefficient F&A operations but may not produce many benefits for those already operating in the first or second quartile of F&A performance.
- Cutover most F&A functions, personnel and systems to a cloud-based F&A outsourcing provider. This approach is great for those who want to avoid a large capital outlay and need to upgrade their talent, processes and/or systems.
Competition and evolution yield choices in the marketplace. F&A executives are getting more and more choices and a more diverse group of solution providers. If you run an F&A operation and the current crop of on-premise software solutions look too limited, too expensive and too much of a headache, then look at some of the new opportunities out there today.
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
Subscribe to Software & Services Safari via Email alerts or RSS.
