Financial Executives International’s (FEI) sixth annual survey report finds a huge number–“over 90 percent”–considered their outsourcing arrangements “successful.” The report, Technology Issues for Financial Executives, surveyed 607 respondents.
That number is important because many of the 15,000 members of FEI hold positions as chief financial officers, treasurers, and controllers. FEI and Computer Sciences Corporation (CSC) conducted the 2004 survey.
Only a miniscule percentage of respondents express disappointment.
Competency Not Cost Is the Major Driver
But that was not the biggest surprise. Contrary to popular belief, cost savings are not the primary motivation to outsource nor the biggest benefit perceived.
Matters of competency mostly drive the satisfaction. “Such high customer satisfaction rates attest to the fact that both buyers and providers are doing many things correctly,” says Lisa Maio Ross, Director of Research for EquaTerra, reporting on the company’s 2004 report, Buyers Discuss the Pros and Cons of Finance & Accounting Outsourcing and the Lessons They Have Learned. BPO provider Exult and the law firm of Hunton & Williams LLP underwrote the study. Ross says some companies are beginning to realize they can use finance and accounting outsourcing (FAO) as a strategic tool to meet government regulations, like the Sarbanes Oxley Act. FAO “enables standardization of processes and helps in the segregation of duties, which is one of the essential elements of internal control,” she explains.
Surprisingly, the issue of control is a major reason cited for satisfaction. Also, superior service levels significantly validate the value proposition for the respondents. Cost appears to be additional icing on the cake. In short, financial executives have found that outsourcing allows them to do things better than they had done prior to outsourcing, as indicated in the figure below.
The drivers for initially choosing to outsource reflect similar sentiments. Cost is a factor to be sure. However, as illustrated below, other primary motivations revealed in both surveys for outsourcing include increasing service levels and acquiring skills and technologies not currently available in-house.
More to Come
According to the report, FAO “is one of the hottest segments of the outsourcing industry this year. As the Fortune 1000 companies still ponder over the pros and cons of FAO, the SMBs (small/medium businesses) have reaped the real benefits of outsourcing their accounting functions to service providers.”
Enterprises are taking a hard look at what they do well to determine what is core to their businesses. “The economic downturn in the last three years has forced many growth and mid-market companies to reduce costs and focus more on their core competencies,” says Ross. “Companies are evaluating the need for retaining F&A functions in house. This is especially true of the small and medium-sized enterprises, which have been hit the hardest by our economic woes.”
Results from the report indicate that even though outsourcing additional financial and accounting functions is on the agenda, the vast majority of respondents are very early in the decision-making process concerning the selection of a provider. Eighty-four percent said they didn’t know who they would select.
Through the growing pains of the trial and error process in the past, both buyers and providers have learned and matured, notes Jeffrey Marshall, Editor-in-Chief of Financial Executive, which published the report. “The logic of outsourcing is irrefutable, and proven results from the biggest names, like General Electric and Hewlett-Packard, have sold smaller companies on the idea.”
Outsourcing has rapidly spread into the mainstream of business strategy and planning. If an enterprise can have a provider do it better, for less cost, while being released from the distracting burdens involving new technology and infrastructure, what is not to like?
“Whether or not the work goes overseas, the idea of offloading it to focus on a company’s core strengths has become ingrained in American corporate culture,” concludes Marshall.