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Multiprocess F&A Outsourcing Explodes

In the past few years, companies have rushed to reap big gains from outsourcing large slices of their HR and IT departments, but they've been much more reluctant to do the same with key finance and accounting (F&A) functions. Multiprocess F&A outsourcing has emerged as a viable strategy only within the last 15 years or so, although companies have outsourced individual F&A processes for some 30 years.

Now strategic F&A outsourcing (FAO) is entering a rapid-growth phase, according to the Everest Research Institute's Finance and Accounting Outsourcing Annual Report 2005. With $1.1 billion in annualized revenues at year-end 2004, multiprocess FAO constitutes just 7 percent of the industry -- but it's growing four times faster than the overall market, with a 31 percent growth rate since 2002.

Joe Fernandes, managing research director at the Everest Research Institute, sees compliance as a major driver of the expansion. "Unlike other areas of outsourcing, CFOs are not engaging in FAO relationships to gain access to advanced technology," he reports. "Rather, they are leveraging outsourcing's ability to deliver significant cost savings and improvements in the area of compliance -- and it's the largest companies with the most complex corporate structures that are leading the way."

Major players in the FAO space are jockeying for position in this expanding market. Earlier this year, IBM acquired Equitant, an order-to-cash managed ser-vices provider with some 200 employees. In June, Outsource Partners International added sales-and-use tax capabilities to its product set through a strategic alliance with tax services provider Salis Inc. And in August, HR services firm Convergys completed its acquisition of the FAO business of Deloitte Consulting Outsourcing.