Matching Matters

As today's finance leaders seek to qualify different options when it comes to outsourcing, the central challenge becomes how to best match an outsourcing provider's approach to the unique needs of a given organization.

Early adopters of finance and accounting outsourcing (FAO) primarily sought the cost benefits of labor arbitrage for discrete, repetitive transactions, such as the processing of accounts payable invoices and travel and expense reports. These were typically multibillion-dollar organizations with large enough transaction volumes to justify FAO providers' investments in technology to automate their services. FAO providers became adept at process engineering, documentation, training, and recruiting low-cost resources able to process high volumes of standardized transactions efficiently and nearly on demand. Recently, however, FAO providers have started offering more complex, specialized services of higher strategic value to finance leaders, adding a very different mix of offerings than the previous “assembly line” approach.

This trend has allowed several key best practices to emerge as more companies attempt to match themselves up against potential FAO providers:

• Consider geography-specific and language requirements and capabilities. When companies operate in multiple global locations, the task of outsourcing can become more complex as outsourcers may not support all required geographic areas or languages. Indian delivery centers may not offer the Spanish language capabilities to support credit and collections activities in Colombia.
• Match your size to an FAO's focus clientele. Middle-market companies, up to $1B in revenue, have different outsourcing needs than larger companies — they have lower volumes and often need outsourced resources that are more nimble. These companies can benefit from working with FAO niche players, who provide specialized, process-oriented services to support a particular set of activities. Conversely, a large enterprise may find that a fully integrated business process outsourcer (BPO) provides the best mix of services, cost, and scale for its unique needs. A smaller company requiring fewer outsourced resources may not receive the same level of service from a large outsourcer that a larger organization would; however, adding incentives such as a sister company or connections to additional business may “sweeten the pot” for a larger outsourcer.
• Align your needs with the FAO provider's offerings. Companies should cross-functionally examine all services to be outsourced as well as evaluate each vendor candidate's individual strengths. Whether the outsourced services are task-oriented, strategy-oriented, or a combination of both, the goal is to match the company's specific needs to a vendor's strengths.
• Address as many functional outsourcing needs under one umbrella as practical. Companies should identify all business areas to be outsourced and, if there are enough elements, try to identify one FAO or BPO provider to comprehensively handle the load. This approach will yield efficiencies from managing a single relationship as well as result in benefits of scale. As an example, aggregate operational and financial service needs to outsource the end-to-end, order-to-cash cycle.

It is important to consider which planned outsourced processes require resources with developed judgment capabilities and which FAO provider models are typically compatible with varying skill sets. And, companies should always be aware of how FAO providers are addressing the recruiting, training, management, and retention of personnel who are required to deliver value through complex thought and judgment. Leveraging this information, companies can then make more informed decisions regarding the right FAO model for their organization and take appropriate steps to align resource skills with the required F&A services.

Early adopters of FAO services sought the labor arbitrage benefits of outsourcing low-risk activities that could be easily controlled through policies and business rules. Now companies and FAO providers are looking for additional benefits and new, unique ways to enhance value. The assembly-line approach is evolving, becoming more customized to meet the more mature needs of buyers while still providing necessary cost and efficiency benefits.

Now watch Steven Kirz discuss best practices in selecting FAO providers.