To launch our exploration of ‘The Future of Finance Outsourcing’ with Grant Thornton and ACCA, we thought it would make sense to take a look, in this exclusive panel debate, at the status quo in the space from both organisations’ perspectives – and at how the drivers of the past few years will still have an impact on outsourcing relationships and organisational models for some time to come.
About the Participants
Jamie Lyon is Head of Corporate Sector at the Association of Chartered Certified Accountants (ACCA), the global body for professional accountants. He is leading ACCA’s global research and insights programme on finance transformation.
Neal Dempsey is Financial Management Advisor at Grant Thornton, one of the world’s leading
organisations of independent assurance, tax and advisory firms.
Oliver Colling is Head of Financial Management & Effectiveness at Grant Thornton, helping clients
realise the value from their finance, procurement and human resources functions.
Jamie Lyon: Let’s kick off by touching upon the two major pieces of work that we’ve done recently. We did a piece of research in January called ‘Expert insights into shared services and outsourcing’; we talked to 20 of the world’s biggest brands and the main BPO providers, some advisory firms and quite a few global clients of shared services and outsourcing providers about what’s happening in the global space in terms of shared services and outsourcing: what they saw as the opportunities, the issues, the challenges…
My headline observation there was that essentially they were saying was that they were pretty comfortable with some of the technological and tactical aspects of outsourcing and shared services, but that some of the softer stuff was still the most difficult to embed. So with a transition process or a financial transformation process, things like change management just kept coming up time and again: “We haven’t really worked out how to manage the change process effectively”; “Change was a big issue.”
The second big finding was around the relationship between the outsourced provider and the client in terms of expectations, and the alignment between what the clients wanted and what they were delivered; whether or not there was some sort of misalignment between what the outsourcer and the provider wanted. Things like speed of transition: the BPO might want to go really quickly; the client might not. The other major issue was the retained finance function – we got a clear sense that often the retained finance function had been overlooked as part of the transformation journey.
So, from a buyer’s perspective, a lot of questions around: how do we make the relationship work, and how do we design and restructure or transform our finance function to drive that optimum finance model? From a provider’s perspective, just because you got really effective in terms of your service level agreement does not necessarily mean you have happy clients! And there are issues around that.
So these were some of the headlines that I took away from the first piece of work. And I was wondering if you had any observations from your clients around those.
Neal Dempsey: I suppose the question is, what kind of things are we seeing driving people at the moment either to look at outsourcing additional processes or expand their existing activities – or squeeze a little bit more out of the existing model. The phrase that was popular a few months ago was “this is the new normal” – and a lot of people just wanted to take a look at what that new normal was: “If this is the way we are going to be for a couple of years – fairly stagnant in terms of growth opportunities – then we’ll look to do more with less.”
Ultimately the cost argument – the leaner, more efficient organisation – is still driving a lot of the thinking. Also a big chunk of that has been public sector-driven for us of late – and the whole cost-cutting agenda there is of a different order. They are looking at dramatic change, certainly, in that sector.
JL: For our second piece of work, which is coming out shortly, we ran a survey with almost 500 CFOs and finance leaders globally. It was interesting to ask CFOs themselves as opposed to people who have day-to-day responsibilities for shared services or outsourcing; a lot of research done previously has talked to the latter kind of people in the industry, so I thought it would interesting to talk to the ultimate finance customer. What do they see in terms of how successful are shared services and outsourcing? What were their initial drivers? How have their aspirations evolved? And there’s a sense that these models haven’t quite delivered on promise in every area. There is something around “we got labour arbitrage, we got the cost – and that’s good; but our businesses are struggling at the moment and it’s a very competitive environment, so we would like more of that – and by the way we like more cost out and we want lots of other things as well…”
ND: Larger organisations are much more mature in terms of transactional outsourcing. It is that point where organisation might have moved big chunks of activity a number of years ago now, taken the benefits that are there, and then lived for a while with some of the pain of an incomplete understanding of roles and responsibilities, and a bit of a break-up of the end-to-end process. So there is a lot more discussion in terms of “what are the bits we haven’t thought about properly?”. If you think about, say, credit control and revenue assurance-type processes, some organisations dump out the basic transactional stuff, and then the retained knowledge in the organisation – say in the UK or in the parent business – is lost; so organisations tend to have lived for a period of time with the discomfort that can create.
They are perhaps thinking about putting a bit more of that process onto the provider and starting to squeeze them for a bit more in terms of driving value back to the business. There should be much more of a discussion around how to work with the provider better to get more value.
Oliver Colling: I think there has been an expectations gap: those organisations who are two or three years into a major outsourcing arrangement were sold a strategic partnership, a transformational partnership – which actually, now the economic situation has changed and both internal and external customers are more demanding and value-driven – they’re actually finding out what they have is a commercial arrangement under which the providers are meeting service levels and service level agreements and targets but doing no more. There’s now a demand in terms of value-add, in terms of quality, rather than just the transactional element. Nobody got into these arrangements wanting to fail and to end up in any kind of confrontational situation. But the world’s a very different place to what it was three or four years ago, so with the promises of value and service, unless providers are actually contractually obliged to meet qualitative measures, a lot are now retreating into doing what the contract says – and that’s it.
JL: So pretty much sticking to the letter of what’s in the contract – and that is the nature of the relationship. Is it your view that the main BPO providers have the capability to move it to the next level? One of the things that came out from the CFO study was that there was a sense that a captive model was perhaps more effective sometimes in moving some of the high-value stuff – and I don’t know if this is, because it’s in-house, maybe there is issue about better control, or better control of talent development. But there definitely was a case for shared services at the higher end, and I wonder whether there is the same case for BPO…
ND: A lot of this will come down to organisational culture, when you start to think of what some of those more value-adding activities might be. Typically the BPO is still operating something of a silo, and isn’t sufficiently close to the culture of its client business most of the time, it will be hard to step up to deliver that service. I think that’s where you are seeing a number of people deciding that “I can get more from my shared service; I can mould that to the culture to the rest of business”. It’s much more a servant of the company rather than a customer-supplier relationship – which the BPO is always going to be.
JL: So if we take that argument on a little bit: when we talk about the future of F&A outsourcing, there is obviously more ongoing talk about transitioning the higher-value stuff; with the real high-value activity like insight and analysis, I have a question in my head over whether there is a natural line that has to be drawn in the sand, purely because you can’t just move some stuff out – or whether actually the future for outsourcers is very rosy and you can move virtually everything out of the finance function.
ND: In a lot of organisations there is still an awful lot that can move – it comes back to the piece around the retained organisation and people actually understanding what that looks like. In terms of getting that right: I don’t know sometimes whether the effort of the actual outsourcing project means that the retained organisation gets left behind, and assumed that it will just know what to do “because they’re accountants, aren’t they?” I feel that happens sometimes. I do think that there are organisations where it might well be better that most of that retained function were outsourced, in terms of how the organisation works – because people aren’t getting that bit right, and aren’t getting the value from what they retain within the business at the moment. It gets forgotten and there is the gap between “we hope to move more out into the BPO” and “we hope to develop more of a business-partner relationship in-house” – and neither of those things happen.
OC: The retained organisation is a really important point. Typically, what has happened is that the retained organisation has been made up, literally, of those who have been retained – when actually the skills and experience required can be quite different, because you are talking more about service and contract management. Someone who has been responsible for managing the task is not necessarily the best person to be managing the delivery of that task from a third party. Not all organisations have grasped the nettle there.
JL: I think you’re right – and I think business partnering is a term that organisations widely misuse; some are doing some element of business partnering, but a lot of business partnering activity taking place really is routine and not particularly insightful nor analytical to the business. With regards to the retained finance function: it leads to other questions around the whole talent development issue, which is something in which we are very interested. Has talent development cropped up in many conversations you have been having with your clients?
OC: Yes, it has been a big topic – and a big concern – all the way through the recession. Finding and retaining and motivating good staff is still one of the number-one issues, because good people are hard to find and it’s become even harder to persuade them to move. We have the perverse situation where we got high levels of unemployment amongst the broader finance community but not enough talent to fill these really important roles in retained organisations.
JL: One of the striking observations from the whole finance transformation agenda – and as part of that, shared services and outsourcing – is that once you start to break up and offshore elements of the finance functions, all career paths are not necessarily available anymore. In the near future, what are the implications of developing new talent through your extended finance functionality? Once you start to offshore to India, how do you continue to develop talent across finance? For future CFOs what are the entry points? Are those questions cropping up in your discussions?
ND: Only in the sense that they’re not ones that people seem to be able to answer… Leading organisations increasingly look to rotate their talent through the SSO. I don’t necessarily see that people have that kind of relationships with their outsourced providers, to take certain members of their team through. Maybe in those kinds of situations where there are development projects between the two partners you start to get more junior members of the finance team involved so they can see beyond their existing role, and start to get involved in business and process improvement activities – but generally I don’t necessarily see huge examples of really good practice, let’s put it that way.
JL: We asked CFOs: what does success look like for you in these transformation journeys? Is it all about getting the cost down and showing the return that way? How do they measure that? What are your thoughts?
OC: Success in the beginning of the journey was to go through the outsourcing process and then ultimately to realise cost savings; then – particularly for those organisations who are two to three years into their relationships – their questions have changed. Operationally they becoming more demanding of functions like finance, HR, procurement and want more from an outsourced relationship than they did previously.
ND: There is that element of, “two or three years down the line do we view our relationship with confidence? Are they not the trusted advisor but a trusted partner?” One of those has slightly more intangible measures of success – but it’s actually a really important issue: “Can we go to the provider with the new problem? Can we have confidence that they are not going to see this simply as a revenue generator?”
OC: The whole governance around relationships I think is evolving. We have been involved in a lot of instances where the relationship has broken down and become very confrontational. And there’s a lot to learn from that. When you go through something like this you need to build in some kind of area for good identification and quick resolution of any issues.
ND: It comes back to “what will success look like when we have done this?” It’s important to make clear to the provider that “this is what is important to us as an organisation, and for this relationship to be successful to us these are both the hard numbers and the soft, more intangible things that will be important to us.” But some people are finding that hard enough to work out for themselves, never mind articulate to the providers!
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