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Tuesday, October 30. 2007
Outsourcing: Is the Debate Over?
Is outsourcing a problem or an opportunity? Join the study. Get the answers.
by Rick Telberg
Outsourcing finance and accounting work, sometimes to providers in foreign countries, is producing revolutionary levels of cost savings and service improvements. But some parts of Corporate America have been slow to cash in.
While outsourcing is a primarily a Fortune 1000 type of issue, both the largest and smallest companies are losing major competitive advantages by failing to embrace offshoring F&A operations.
In fact, AMI-Partners, a market research outfit, is wondering if outsourcing is “losing steam” in the United States. AMI analysts figure that about 60 percent of medium-sized businesses, those companies with 100 to 999 employees, have opted in one way or another for business process outsourcing. That’s strong. But that’s also the same level of penetration as three years ago, without improvement since.
by Rick Telberg
Outsourcing finance and accounting work, sometimes to providers in foreign countries, is producing revolutionary levels of cost savings and service improvements. But some parts of Corporate America have been slow to cash in.
While outsourcing is a primarily a Fortune 1000 type of issue, both the largest and smallest companies are losing major competitive advantages by failing to embrace offshoring F&A operations.
In fact, AMI-Partners, a market research outfit, is wondering if outsourcing is “losing steam” in the United States. AMI analysts figure that about 60 percent of medium-sized businesses, those companies with 100 to 999 employees, have opted in one way or another for business process outsourcing. That’s strong. But that’s also the same level of penetration as three years ago, without improvement since.
So, is the debate over outsourcing over? Hardly.
Within the CPA profession, outsourcing has been standard operating procedure since before it was “outsourcing.” You don’t need to look back too far in the history of the profession to find firms farming out extra work to per diems, sending client tax papers to Texas for preparation or parceling out highly technical projects to elite specialists. Today, outfits like PayCycle, XCM and Real Time Data Services are burning up the professional marketplace with outsourcing options for CPA firms.
Nevertheless, Michael Bloch at McKinsey calculates that outsourcing F&A operations is helping American companies cut their labor costs by as much as 70 percent and improve productivity by as much as 5 percent. It is also strengthening companies’ controls and risk management because a recent trend among offshore service providers has been the hiring of their own risk officers who deal with Sarbanes-Oxley, Basel II and Securities and Exchange Commission (SEC) reporting.
CPAs may be wondering: Is outsourcing a threat or an opportunity? The answer, like many things related to globalization, is both.
Some of the biggest beneficiaries of outsourcing are CPA firms themselves. They find economies in pushing rote work down the supply chain while, at the same time, taking in new work from new clients looking for the same kinds of economies. For CFOs, outsourcing can free up valuable resources for value-add activities, increasing productivity and effectiveness.
But Bloch says that many American organizations are unaware of the offshoring market’s sophistication. As such, most of the limited number of companies that do offshore limit it to simple commodity and transactional activity. He contends that offshoring operations can effectively handle the full continuum of companies’ financial activities from core accounting to decision support areas, including financial reporting and management reporting and higher end planning and analysis, treasury and cash management and tax preparation.
“We continue to find that companies make sub-optimal choices when crafting offshoring,” Bloch says. In addition to underestimating the capabilities of offshoring service providers, he notes that management of companies that offshore often “feel pressure to capture near-term costs benefits,” and disregard setting long-term strategies that can provide larger long-term returns.
Also, many companies are postponing offshoring until after they improve their underlying IT structures or complete enterprise resource planning (ERP) implementations. He argues that companies should take advantage of offshoring first and improve the IT processes or implement the ERP systems in tandem with building the offshoring platforms.
This “ship then fix” approach delivers up to twice the value of the “fix then ship" approach because offshoring generates returns on investment (ROI) significantly faster than ERP implementation or IT fine tuning delivers their ROI, he says. Even smaller companies benefit from the “ship then fix” approach because offshoring rapidly reduces their need to hire outside contractors or temporary financial staff.
The sooner companies launch outsourcing efforts, the sooner they can reduce the programs’ risk with strategies that spread the offshore work to multiple locations. For example, when offshoring to both India and Europe, a company is better assured of business continuation if a natural disaster, war or political unrest hits one location.
Companies that offshore to multiple sites include Genpact, a former GE subsidiary that sends its F&A work to separate providers in China, Hungary, India, Mexico and Romania.
Coincidentally, GE is among Corporate America’s outsourcing leaders. Some of its companies offshore as much as 40 percent of their F&A work, from typical accounts payable and expense work to accounting and control functions and the preparation of 10-Ks and other reports for the SEC.
The bottom line, as always, remains the bottom line. CPAs and CFOs are not very interested in the mechanics of outsourcing or offshoring. They are, instead, keenly concerned with serving their clients or their company, saving money or making money.
In that vein, business process outsourcing is just one aspect of business process management and improvement.
Forget “outsourcing” or “offshoring.” Start thinking “right-sourcing” and “right-shoring.”
CPAs SOUND OFF: Is outsourcing a problem or an opportunity? Join the study. Get the answers.
Copyright © 2007 Bay Street Group LLC. All Rights Reserved. Used by Permission.
Within the CPA profession, outsourcing has been standard operating procedure since before it was “outsourcing.” You don’t need to look back too far in the history of the profession to find firms farming out extra work to per diems, sending client tax papers to Texas for preparation or parceling out highly technical projects to elite specialists. Today, outfits like PayCycle, XCM and Real Time Data Services are burning up the professional marketplace with outsourcing options for CPA firms.
Nevertheless, Michael Bloch at McKinsey calculates that outsourcing F&A operations is helping American companies cut their labor costs by as much as 70 percent and improve productivity by as much as 5 percent. It is also strengthening companies’ controls and risk management because a recent trend among offshore service providers has been the hiring of their own risk officers who deal with Sarbanes-Oxley, Basel II and Securities and Exchange Commission (SEC) reporting.
CPAs may be wondering: Is outsourcing a threat or an opportunity? The answer, like many things related to globalization, is both.
Some of the biggest beneficiaries of outsourcing are CPA firms themselves. They find economies in pushing rote work down the supply chain while, at the same time, taking in new work from new clients looking for the same kinds of economies. For CFOs, outsourcing can free up valuable resources for value-add activities, increasing productivity and effectiveness.
But Bloch says that many American organizations are unaware of the offshoring market’s sophistication. As such, most of the limited number of companies that do offshore limit it to simple commodity and transactional activity. He contends that offshoring operations can effectively handle the full continuum of companies’ financial activities from core accounting to decision support areas, including financial reporting and management reporting and higher end planning and analysis, treasury and cash management and tax preparation.
“We continue to find that companies make sub-optimal choices when crafting offshoring,” Bloch says. In addition to underestimating the capabilities of offshoring service providers, he notes that management of companies that offshore often “feel pressure to capture near-term costs benefits,” and disregard setting long-term strategies that can provide larger long-term returns.
Also, many companies are postponing offshoring until after they improve their underlying IT structures or complete enterprise resource planning (ERP) implementations. He argues that companies should take advantage of offshoring first and improve the IT processes or implement the ERP systems in tandem with building the offshoring platforms.
This “ship then fix” approach delivers up to twice the value of the “fix then ship" approach because offshoring generates returns on investment (ROI) significantly faster than ERP implementation or IT fine tuning delivers their ROI, he says. Even smaller companies benefit from the “ship then fix” approach because offshoring rapidly reduces their need to hire outside contractors or temporary financial staff.
The sooner companies launch outsourcing efforts, the sooner they can reduce the programs’ risk with strategies that spread the offshore work to multiple locations. For example, when offshoring to both India and Europe, a company is better assured of business continuation if a natural disaster, war or political unrest hits one location.
Companies that offshore to multiple sites include Genpact, a former GE subsidiary that sends its F&A work to separate providers in China, Hungary, India, Mexico and Romania.
Coincidentally, GE is among Corporate America’s outsourcing leaders. Some of its companies offshore as much as 40 percent of their F&A work, from typical accounts payable and expense work to accounting and control functions and the preparation of 10-Ks and other reports for the SEC.
The bottom line, as always, remains the bottom line. CPAs and CFOs are not very interested in the mechanics of outsourcing or offshoring. They are, instead, keenly concerned with serving their clients or their company, saving money or making money.
In that vein, business process outsourcing is just one aspect of business process management and improvement.
Forget “outsourcing” or “offshoring.” Start thinking “right-sourcing” and “right-shoring.”
CPAs SOUND OFF: Is outsourcing a problem or an opportunity? Join the study. Get the answers.
Copyright © 2007 Bay Street Group LLC. All Rights Reserved. Used by Permission.
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