The Outsourcing Jigsaw: An industry in need of some fresh perspectives?
This article originally appeared in Outsource magazine Issue #30 Winter 2012
Sometimes you can gain great understanding of a situation by taking a long hard look from outside – so here are some thoughts from a relative newcomer to the outsourcing space, who isn’t holding back when it comes to urging change upon the industry…
OK, you might argue that “outsourcing” is as old as the hills – but you must agree that the industry is in need of some fresh perspectives and approaches that will improve its perception in the business world and widen its appeal to an enormous untapped market. The great and the good of BPO have much to be proud of in creating a new industry, and in encouraging innovation; in this article, I am going to throw a stone into the outsourcing ocean that I hope will create a ripple that joins others to create sufficient turbulence to power change. Change that will establish outsourcing at the helm of business services, and substantially broaden its appeal to a wider market.
This is not the vision of a synergistic metamorphosis of BPO through the eyes of an inspired genius with a wealth of experience in the subject matter. On the contrary, it is that of an outside runner whose simple views hopefully pinpoint the glaringly obvious against a landscape obscured by the dust raised in the race to be the cheapest, widest or loudest in corporate global outsourcing. It is a view shaped, not from some lightbulb moment, but from discussions with some of the world’s largest and most successful outsource providers, leading technology innovators, and business service professionals – combined with a little joined-up thinking.
Forgive me if I am preaching the bleeding obvious, to the congregation of the Church of The Enlightened Outsourcers – but let me take you on a journey along a rainbow and see where we land!
I shall try to make it simple (in order that I may have a chance of understanding it myself!): I will focus on a single element of BPO – that of Financial Process Outsourcing (FPO). For clarity, I have elected to create my own TLA, rather than refer to “FAO” (Financial & Accounting Outsourcing), because I want to deal with the mundane financial processes, and the workflow and administration aspects of the more advance processes. I choose to leave accounting to the noble profession of the accountant.
Exponents of Governance Risk Management and Compliance see way beyond my Sales Ledger, Purchase Ledger and General Ledger. But are they not wise people who make a handsome living out of confusing people by over-complicating life and charging you for explaining the jargon which they make up? I shall compromise, and offer instead Order-to-Cash; Purchase-to-Pay; and Record-to-Report.
Here we have highly regulated reporting and audited process, and FPO providers deliver fantastic results in terms of standardisation, efficiency, and substantial savings. The smart ones deliver greater visibility and control to their customers to boot. In fact, that was my perception when I first became aware of outsourcing, working for a leading provider of financial process automation software. I saw shared service centres established and met some really slick dynamic young managers, bringing together process experts, software, and data to deliver meaningful results to the business that it served.
Following this encouraging early insight, I stepped out of the world of financial process automation, to help companies enter new markets – which I love. In true circular fashion, I was approached by a leading financial process software provider to help develop and expand its impressive European client base, and explore the possibilities the software could deliver to the clients of BPO providers.
With particular help from the National Outsourcing Association, the team at Outsource, and a some of the world’s leading BPO providers, I was introduced to the outsourcing world of 2012. I heard such enticing phrases as “Financial Transformation”, “Design Thinking” and “Operational Excellence”, on webinars, in conferences, and from the voices of advocates and ambassadors of this new and impressively weighty industry.
I was pleased to have the opportunity to delve a little deeper into the expertly designed, standardised, efficient engines that powered transition and transformation to deliver awesome economies of scale to a happy band of customers – customers who could, we are led to suppose, gleefully let their administrative and non productive business elements be run elsewhere, whilst they focussed on their core value propositions, customers and investments.
As the journey continued I found experts in all financial processes, purchasing, human resources, security, key business software applications and infrastructure. I felt like I was entering the land of “Me Too”, hearing phrases such as “labour arbitrage”, “target-driven”, “cost-driven”, “unit-value”, “supplier discount”, and “Service Level Agreements”. Arghhh! I’ve discovered a fairly significant lay impression that outsourcing has a rather unpopular image as a low-cost, offshore job-thief that struggles to deliver post-sale results promised by pre-sale hype.
I heard shared service centres that had moved offshore were closing down or selling out because they simply failed to deliver the results they were intended for. Now for each failure, I am sure there are many more successes – like those I witnessed at the recent NOA Awards evening. Unfortunately, human nature dictates that bad news travels the quickest and reaches the farthest – especially when delivered so eloquently in the humorous 10 Merit Badges for Outsourcing identified by Deborah Kops (see http://bit.ly/QnmV1o).
I don’t want to enter the realms of the grumpy old man: I’m far too young! And I have heard some truly inspirational thinkers and doers to dwell too much on the negative.
There will be many great innovators and steering committees devising new approaches to known client problems, with clever process diagrams and sophisticated methodologies. These folk will be light-years ahead of my thinking – working in silos to take the next market iteration by storm. I do not have the infrastructure, capital or in-depth management expertise to work in my own silo, so, for what it is worth, this is how I have devised a model that may capture a slice of the current BPO market, and widen the appeal of BPO to a whole new market.
Like a special episode of Masterchef for the outsourcer, I am going to consider what I am going to make, and why. What are the ingredients, and how am I going to present it.(I am not being over-simplistic or patronising – I really am genuinely ignorant!)
What is Outsourcing?
Allow me to conjecture the point of outsourcing as: operational revenues less operational costs is the real value of your business. Look at the costs not associated with your core business proposition such as HR, IT, financial administration etc. If outsourcing these activities to companies that deliver an efficient service, more cost-effectively with enhanced value and expertise, then the true value of your business will increase. Outsourcing allows you to focus your energies on your core value proposition.
Now a successful BPO has to offer a real value proposition to survive. I maintain that competing on price means you have no meaningful value proposition. If you do not believe me, then cease all sales and marketing activities with immediate effect, publish rates for services online, and we’re done. Those working for the outsourced dollar need to smarten-up, or the price equilibrium will sink below the rates determined by what used to be emerging economies – “differentiate or die”.
Now I have to be honest and say I have not personally seen a financial process outsource team in action. Hopefully, that day will come. For now, you will have to make do with Andy’s Utopian World of Outsourcing, and fill in the blanks yourselves.
What are the key ingredients to Financial Process Outsourcing?
The ingredients from which we concoct our magnificent feast are based on a core set of ingredients – this applies, I think, to all aspects of BPO, but I will use FPO as an example (because I nearly came close to understanding it, once).
Fundamentally, we have Compliance – all companies must file accounts. In so doing, we must adhere to regulatory rules and statute, and our own governance standards.
We have data and lots of it, from a variety of sources.
We apply processes, which we standardise across our organisation.
We have accountants to apply their professional skills for analysis, risk management, reporting, and all that really exciting post-number-crunching stuff.
In his book The Last Mile of Finance Gary Simon relates Plato’s observation that it is necessity that is the mother of invention. Indeed, it is compliance with Sarbanes-Oxley and Basel II that drove the need for the office of finance to have greater controls and visibility over financial operations.
Where compliance was once an evil overhead, the results started to deliver significant advantages over the darker days which allowed the corruption at Enron, Health South and many more to happen.
What outcome does the client want from outsourcing? To efficiently achieve compliance, with high levels of visibility and control over financial processes, in order to deliver value to both customer and shareholder.
I am deliberately not mentioning well-established components of the framework for financial process outsourcing; I am just emphasising the elements which I have decided are the most important!
Getting the start right is the key to getting the best outcome. Tackling this part of the equation was tough, until I had the pleasure of meeting with John Reynolds of Dynalucid – an expert in design thinking, especially in IT outsourcing. The approach I sampled from meeting with John, is applicable to all business processes, and combines nicely with lessons learned from the approach I saw a German engineering company take in seeking a solution to financial process automation. To abridge a favourite quotation of John’s: design thinking is about structuring a solution approach that matches customer needs with what is technically feasible and will result in real value to all stakeholders.
Outsourcing data and the management thereof must be a nightmare. I’ve seen internal projects heavily challenged by issues of data sourcing, structuring and management. I recently met with a very senior figure in global outsourcing, who explained to me how data was taken from core client systems, refined in a portal database, then outsourced to a team in Eastern Europe, fed back into the portal database, and then delivered back into the client’s core ERP and reporting systems. Now that is what I would call outburdening – hot potato, sir?
With changes in regulation, rapid organic growth and acquisition, it is no surprise that financial operations have become somewhat less than perfect. Standardising on a single accounting system and processes is a great start, then we have O2C, P2P, R2R, Financial Close, and reporting.
In FPO, our experts come from the accounting profession: the ones who specialise in regulatory compliance; the ones who specialise in process controls; the ones who excel in team leadership; and the ones with an eye on technical innovation. It is unlikely that you would find all these attributes in one person – at least, in my view.
Automation of core financials, and the bells and whistles that surround them, is common fodder in corporate finance and outsourcing. It is the areas of financial process that are populated by spreadsheets, databases, workflow, that I want to focus on.
I was very interested by Jamie Lyons of ACCA on Finance Transformation, and his analysis of the survey results of CFO views on strategies for shared services and outsourcing financial activities. He observes that “quality, scalability, transformation and talent quickly rise up the agenda…”. He also reveals that, despite a significant number of corporations not having taken the plunge into remote operations, the outsourcing of transactional activities is delivering good results.
Taking things a step further, a few software solution providers have integrated solutions to deliver automated data sourcing; data-mapping; transaction-matching; exception management; account-reconciliation; journal-posting; financial close and reporting.
I am sure we will not have to wait two to four years for BPO providers to identify the pieces and complete the jigsaw, to create a solution that helps clients to increase their true value. My experience is in FPO, but I am sure that disciples of other outsourcing functions will present their own jigsaws.
For the past two years, I have been working on a model for financial process outsourcing (FPO), which combines BPM, high levels of automation and professional expertise to deliver a highly scalable FPO that will significantly widen the appeal of outsourcing.
I want to turn Plato’s saying around, and say that “it is invention that is the mother of necessity”.I look forward to sharing this model with you, challenging the limits that you see, and opening up completely new opportunities.
About the Author
Andy Scott is a governance, risk management and compliance expert with deep experience in financial process automation, sales and marketing management.