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The F&A Forecast: 14 Challenges and Six Solutions

The finance and accounting function, along with HR, have traditionally been the BPO processes that companies testing the waters of outsourcing get wet with first. Today “transactional outsourcing has been leveled to a simple commodity,” says Michael J. Alfonsi, Managing Director, BancTec Financial Transaction Services.

So what are FAO’s challenges 20 years later? Processes are seasoned and systems are humming. So what keeps CFOs up at night these days? We interviewed four of the industry’s leading experts to find out.

The biggest change is those demanding buyers. You know, the ones in their third generation of outsourcing.  “As F&A buyers and providers continue to mature, so do buyers’ demands,” observes Sanjay Jain, head, Global Transformation Practice, WNS.

These experienced buyers are putting the pressure on their service providers to perform.  They are demanding that their service providers “finally come up with the famous and ethereal ‘value add,'” notes Alfonsi, who is responsible for the BancTec’s portfolio of outsourced financial solutions,  But this time, he says, “they need real value, like analytical tools, crisp process improvement tools involving fact-based reviews and strong business cases.” Knowledge process outsourcing is one way to produce that value add.

In addition to these demands, according to Amit Sharma, general manager, Corporate Business Services for Wipro, pressures on the finance department have intensified over the last five years and not just because of the global recession. “More stringent regulatory regimes and a changing demand from the business to have finance become a true partner have created a need for faster information and a more agile response to change, particularly with mergers, collaborative ventures and divestments,” he says.

And if that’s not enough, Sharma adds buyers now expect the finance function “to provide greater business insight, give more relevant decision support and make recommendations regarding business opportunities.” Oh, and buyers still insist their service providers meet routine expectations like closing the books on time.

In fact, V. K. Raman, global head, Domain BPO Services for TCS, says this year CFOs who want to “sleep better” have to adopt a completely new mind set. They have to “stop considering themselves the custodians of the financial records and the monitors of internal financial controls.” Instead, they are in the process of morphing into trusted advisors to the board and top management. “CFOs are required to anticipate risks and develop scenarios to meet them,” he says.

2013’s current challenges

The experts call out five different issues they have to conquer this year to be successful. They are thorny all and include:

  • Access to working capital. Alfonsi of BancTec says “just because the first shock waves of the financial crises have eased doesn’t mean real concerns about cash flows, payback periods and access to capital have changed. Instead, they are actually “more important now.” He notes organizations that are still capital constrained are “pressed harder than ever,” and companies sitting on cash “require a preponderance of evidence before they deploy it for a project—and even then in small increments—because the atmosphere is still risk adverse.”
  • Sharma of Wipro wonders how business can grow and maintain competitive advantage “when they are faced with an environment where funding and equity are scarce and expensive pressures remain on cost reduction.” How do you grow without the money to grow is the existential question.
  • IFRS compliance deadlines. Jain says EU countries must finally implement the road maps they established to comply with the international financial reporting standards (IFRS) this year and next. “The next phase of challenges is translating the strategy into clearly actionable plans,” he says. Many companies this year are creating partner ecosystems of technology providers and outsourcers “to help them navigate the next few years.”
  • Add SAS-70 and SOX (Sarbanes-Oxley) to the pressures of regulatory compliance in the US. Staring down regulators is a task CEOs want to avoid. FAO executives have to be on their toes here.
  • Technology. In 2013 new technologies like cloud and mobility “pose a threat to the agility of those organizations that are locked into traditional technology delivery methods like mainframe licenses and at-desk-only work situations,” says Sharma of Wipro. 2013 might be the year they are forced to move into the 21st century, kicking and screaming.
  • The emphasis on accuracy. Jain says CFO organizations have “increased their glare on internal and statutory auditors alike.” This means they expect their F&A suppliers to “ensure transactional accuracy and strict compliance in a highly visible and transparent manner.”
  • For that reason, Raman of TCS says buyers are increasing their demands for regulatory risk-related services, especially around financial reporting. “Because of the recent global financial crisis, governments and regulatory bodies around the world have become more stringent in enforcing rules and reporting requirements,” he says.
  • More global operations. More customers that have global operations are turning to it for help with managing reconciliations, maintaining books in multiple currencies and formats, and identifying areas of potential risk, according to TCS. In addition, companies are facing “market pressure with global competition,” he adds. And global expansion can only increase because that is one of the surest ways companies can grow in today’s economic environment.
  • The pace of change. Rajashekaran Gokulan of Xchanging adds the pace of change “continues to pick up speed, which impacts many of the above. For example, governments are introducing regulation “at an uncompromising rate, companies are launching new technologies on an almost daily basis and business models are rapidly evolving in almost every industry sector,” he points out.

Inhibiting issues

Many CFOs are finding a range of issues inhibit their ability to master these challenges. The experts say these roadblocks include:

  • Accurate and timely information is difficult to get. Sharma of Wipro says this is “because systems are inflexible and fragmented.” TCS adds disparate systems running financial applications add to the complexity.
  • The wrong focus.  The Wipro executive believes too many business units are preoccupied with transactional and tactical issues. This prohibits the finance department from providing “innovative, forward-looking strategic tools.” So processes stay “inflexible and inefficient,” says Wipro.
  • Insistence on being perfect. Alfonsi says the insistence on perfection “has become the enemy of the good.” The BancTec executive observes the finance department’s “focus on high returns with miniscule risk has resulted in shelving many an efficacious initiative because it lacks what just 30 months ago had been an acceptable payback period.” He says top-performing companies make improvement efforts ongoing, “not in fits and starts with someone constantly changing the goal line.”
  • Talent shortages.  Raman of TCS says years of purging for cost reasons means buyers “need to invest in people with specialized knowledge and experience to do serious analysis or risk management work.” Talent is one reason he says the board should not make “across-the-board cuts to certain critical functions like finance.”
  • Limited analytic insights. This happens because the processes are fragmented and prone to error or the tools are unsophisticated. This is a problem because today’s management “is pressuring CFOS to analyze trends, patterns and past experience with increasing precision and insight,” says TCS.
  • Inadequate business intelligence. Sharma of Wipro says this often occurs because both the data and the systems are fragmented.
  • Growth strategy selection. Gokulan of Xchanging says CFOs have to select the right mix of organic and emerging market growth..
  • Broken business processes. Often these processes are “too complex, fragmented and prone to error,” Sharma comments.

“All of these present a problem to the finance function. They limit the degree of influence and leadership the finance function can exert within the business,” says Sharma.

Empowering solutions

The experts predict these solutions will probably see more adoption in 2013 because they are the stepping stones to progress. They include:

  • More technology enablement. This year Jain predicts “the beginning of the demand for truly integrated F&A outsourcing.” To do this, outsourcing suppliers “will have to think through a slew of IT enablers.” Gokulan of Xchanging says cloud-based solutions “are transforming FAO from a labor-centric service model to more asset-based services.” He says private cloud computing is already delivering “breakthrough business results.”
  • Mobility. Service providers will have to make a “dramatic change in bundled  mobility services,”  according to Gokulan. He believes “service delivery strategies supporting mobility will directly affect end-user efficiency.”
  • Better analytics. Raman of TCS says increasingly customers look to enhanced analytics “to extract actionable business insights from their transactional data.” Moreover, better analytics demonstrates an improved risk profile to shareholders, rating agencies and analysts, he adds. Better analytics help finance ensure a higher ROI for corporate resources by integrating trends inside and outside the business and testing different scenarios. Finally, new analytic tools “help finance departments achieve unimpeded visibility across the enterprise and operate closer and closer to real time,” he adds.

The  finance function and the CFO “will be at the heart of this data revolution,” says Gokulan of Xchanging.

  • More end-to-end outsourcing. Jain reports a client asked it to acquire the client’s Costa Rican F&A operations so the service provider could take end-to-end responsibility for delivering services. That required WNS to take charge of all business processes, technology and infrastructure. It then had to transform them to deliver more value. “We see this trend maturing in 2013,” he says. It will allow F&A suppliers to “leap-frog the traditional outsourcing lifecycle to accrue business benefits a lot faster and with a much lower degree of risk,” says WNS.
  • Outsourcing up the value chain. Higher-end services like SEC reporting and Treasury are joining data entry tasks, according to Sharma.
  • Greater SaaS adoption. The importance of platforms in finance using software-as-a-service will increase, he adds.

The future looks bright for FAO service providers

What does this mean for outsourcing service providers? Alfonsi of BancTec predicts outsourcing buyers will be “cautious.” He says many were looking forward to an economic recovery in 2012 and it didn’t happen. “The atmosphere of caution and the clouds on the economic horizon are making decision makers “think and then rethink every decision, including outsourcing decisions.” He says “the only antidote” for the comfort of certainty in an uncertain world is for service providers “to become relationship oriented, have proven methods, assist in solid business cases and provide value-added enhancements.” He says that is one of the few ways to give finance leaders “definitive reasons to change now.”

The buyers that do buy will focus their outsourcing dollars “on incremental opportunities with simpler pricing models,” Alfonsi continues.

If the economic outlook brightens by mid-year, the BancTec executive predicts “increased business confidence will boost outsourcing activity. Enterprises will want to ramp up quickly to capture incremental demand and immediately boost their gross profit margins.”

Let’s just hope that comes to pass because then everybody wins.

What F&A challenge are you facing? What solutions have you found?


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