Astonishing advances in technology and communications have enabled companies to operate in an increasingly global marketplace. As a result, conventional business operating models have been re-evaluated as organisations seek to improve performance, productivity and shareholder value.
Traditional wisdom about retaining finance and accounting functions within an organisation’s own ‘gene pool’ has been challenged. Although these functions were once viewed as part of the core skills set organisations retained, there is a growing awareness that outsourcing could deliver cost savings, without compromising quality or security.
Confidence to outsource the finance function looks set to increase as more organisations choose this option and its benefits – as well as risks – are better known. Some companies yet to outsource cite ‘not considering the options’ as their main reason for not pursuing this avenue. However, the underlying drivers for not outsourcing vary, and for the more skilled functions the sensitivity of information is an important factor. Successful outsourcing also requires robust governance, control and risk management.
A KPMG paper on ‘outsourcing the finance function’ (2005) concluded that 52% of respondents continue or plan to outsource the finance function. One respondent wrote, ‘there will be more confidence by finance directors that outsourcing is risk free, economical and great value to the service they offer as Chief Value Officer rather than as pure accountants processing data and information.’
This response highlights the likely future of finance outsourcing. Currently, many companies contract suppliers to process data, but outsourcing to add value is generally accepted as the ‘way forward.’ The payroll function is currently the most popular to outsource, but A/R and A/P management is increasingly viewed as suitable for outsourcing. At present, 27% of respondents outsource the tax compliance and tax planning function and 31% plan to outsource tax compliance. It is likely that the next few years will see a significant increase in the outsourcing of these functions.
The most popular destination for outsourcing the finance function is Britain, but India and Eastern Europe are also favoured destinations. Some suppliers have operations in both Britain and India. Companies look for suppliers that can deliver cost savings, better quality of information, improved productivity and better control.
Another emerging trend is multi-process outsourcing so companies can take advantages of economies of scale. The only finance functions which seem likely to remain exempt from outsourcing are budgeting and forecasting. It seems possible that companies will retain and develop these core functions. As conventional wisdom regarding traditional organisational and geographical boundaries changes, finance outsourcing looks set to be regarded as a standard process using added value skills rather than a one-off option.
Standing still is not a viable option for businesses who wish to thrive in an increasingly competitive marketplace.