Finance and Accounting Outsourcing or FAO, as it is commonly known, started out years ago for routine general accounting and transaction management including handling of account receivables and payables management. But with growing trust and expertise between service provider and customer, FAO now encompasses new functions in corporate finance such as treasury and risk management, tax management, compliance management and statutory reporting to name a few.
There are clear indications about what FAO left behind as it grew—and one of them is cost reduction.
Labor arbitrage, not enough
Yes, of course cost reduction is important and if labor arbitrage gives that outcome, so be it. It just isn’t a differentiating factor anymore; in fact, it is a given. Service providers who can provide innovative improvements will continue to dominate and further gain market share. In 2014, CFOs will demand better data quality, better data management and better integration.
Better decision making
While the CFO and CEO will finally make the decision about where and how much of their finances to invest, an effective and creative FAO partner will help them make an intelligent choice by using analytics, sifting through mounds of financial data and providing pointers to what will work best at any given point of time.
An “integrated solution” is a collection of tools and applications that were probably separately developed. This actually precedes or leads to better decision making. The responsibility of a good FAO partner is not just to take care of the drudgery of financial accounts. It goes beyond to include insights into other functions of the company such that the FAO partner can see what innovations the company should provide funding for and what lines of business might be better off being phased out.
If the FAO partner can be an advisor on investments, here’s an extension of service recently coming to light. Raju Bhatnagar, who has 32 years of expertise in the Banking and IT/IT enabled services domains and is now an independent strategic consultant to companies, says that “aggregation of the procurement function is becoming visible. Partners aggregate purchases of certain products for multiple clients that have procurement needs for the same raw material. At the moment, this is largely being seen in the manufacturing segment.”
Using innovative tools
In an interview with Forbes magazine, Carlos Passi, assistant controller of IBM, said that “many of the roadblocks that CFOs face are similar to those experienced by other members of the C-suite—the availability and usability of the data. However, tools are becoming available that make it easier to access data from less structured sources. CFOs have the opportunity to use this data to support fact-based decisions, developing their role as trusted business advisors.” By extension, this applies to the FAO sector as well.
Process analytics is gaining a greater share of mind and yielding desirable results. While on one hand there are service providers with high-end skills in analytics, and on the other hand there are mature Finance & Accounting service providers, it’s inevitable that they will join forces or merge their skills to offer a comprehensive portfolio to their customers. Mr. Bhatnagar is of the opinion that more and more processes will be moved for delivery by outsourcing service providers, “now that the initial hurdles of ability, capability and security have been addressed.”
Horizontal to vertical
Traditionally, FAO service providers have been industry agnostic but function specific. The trend is changing from this horizontal service offering to a vertical one where FAO firms are specializing in specific industries. So a hospitality company could choose to hire an FAO partner that only has other hospitality companies as its clients. In addition to all the above, it’s evident that since analytics will play a larger role than ever before in adding value to the FAO offering, its dependence on Big Data will increase. Cloud and its impact also cannot be ignored, especially now that data security in the cloud is being seriously addressed.
There is no doubt that the FAO value proposition is not just restricted to the customer’s bottom line alone but is now more directly targeted at the clients’ top line performance. Like all sectors of the technology industry, the FAO sector will have to understand how to use emerging technologies to deliver better results.