Along with the advent of BPO came the popularity of Finance and Accounting (F&A) Outsourcing. This is usually the first choice of offshore service for people seeking to reduce cost in back office functions. However, word on the street is that most business owners who have outsourced F&A tasks are not pleased with the services they have received. Alsbridge Inc. argues against this as they foresee trends that will increase F&A Outsourcing activity.
Increasing penetration. F&A Outsourcing has not reached all industries and there are a lot of avenues where it can still prove to be useful. Untapped fields like retail and investment banks and SMEs have yet to be included in the targeted market segments of outsourcing providers.
Up the value chain. Finance activities that can be outsourced are becoming more and more complex. Gone are the days when only simple bookkeeping and data entry tasks can be accommodated. Strategic audits, reports, and analysis are now being outsourced and the list of services under F&A Outsourcing is continuously growing.
Harsher competition. There is an increasing number of high quality service providers that choose to specialize in F&A Outsourcing. New entrants in India are changing the landscape and a lot of companies follow suit in employing innovation in their service offerings. Alsbridge predicts alliances to be formed as the industry reaches maturity.
Offshore acceleration. The industry has been totally redefined by outsourcing. It has been found out that 60% of global players outsource to India. It is safe to assume that in today’s business environment, it is the norm to outsource finance and accounting functions.
Buy-side sophistication. A big percentage of firms that outsource finance and accounting activities are on to their second F&A deal. This implies that they are more knowledgeable about the market and they have preferences when it comes to service delivery models. A more informed market in a very competitive landscape increases the bargaining power of consumers, further resulting to lowering prices. Flow of deals in finance and accounting outsourcing is generally slow, except for some providers who take advantage of the situation and offer below market rates to attract revenue growth.
More F&A captive sales. More and more companies choose to establish an entire F&A team offshore. Divestments, however, are becoming more common as companies take advantage of the flexibility offered by outsourcing.
SAAS. Software-as-a-Service and cloud-based solutions are gaining influence in the industry. Software programs for finance and accounting used to be unaffected by technological advancement. This is currently changing because a number of suppliers offer standardized platforms for F&A services.
It is clear that the face of Finance and Accounting Outsourcing is developing to a more competitive segment. These trends show that the industry has not become stagnant and a lot of opportunities will keep growth and advancement at a steady pace.
Cloud Computing is regarded as an innovation in the field of information technology. However, according to a survey conducted by TPI, only 5% of companies invested on and created a Cloud Computing strategy when 20% of companies have resources to develop one. The population surveyed consists of 140 global IT decision-makers.
Preparing for the foreseen technologies that can affect business should be prioritized. Cloud Computing is expected to have a great impact on business practices and TPI urges companies to come up with a strategic plan to maximize its advantages. What follows are the top five reasons companies should develop a strategy in dealing with the cloud.
1. iPad Effect on Business - The iPad has become a popular gadget that infiltrated the world of business today. While this phenomenon reaped revenues for Apple, it also showed the multiple avenues wherein Cloud Computing can be used. To avoid confusion or improvised management systems on Cloud Computing, strategic steps have to be formed and implemented so as to facilitate its proper usage.
2. Cost Control - While the recession has passed, companies do not see this as a reason to keep decreasing expenditures to a low minimum. The survey showed that the primary reason behind the massive support on Cloud Computing is cost savings in IT.
3. Pricing Confusion - The pricing structure for Cloud Computing is seen as a pay-as-you-go setup. While this is the case theoretically, it doesn’t occur strictly in practice. The truth is, pricing and terms of service are different for various cases and needs. As such, it is of prime importance that companies take time in selecting the most optimal solution, while involving and preparing the entire organization for the process.
4. Changing Landscape - Service offerings have altered and increased in variety with mergers and acquisitions in the works. New innovations in cloud-based services are causing clutter in the current landscape. A set strategy will help an organization filter options and providers in order to arrive at the best vendor and service model.
5. Only the Beginning - Cloud Computing will be successful if it is managed with a centralized IT system that coordinates demand, capacity, and other essential factors. What helps in creating this system is planning in advance and strategizing even before implementation.
by: Karen Cayamanda
Friday, October 15, 2010 | Comments (0)
Category: Outsourcing Research / Trends
Majority of business owners think that the best outsourcing setup is one that covers the least amount of cost. Alsbridge cites that this is not exactly the case. Outsourcing should be focused on the long-term value of the contract and how it meets overall business objectives instead of solely on operational expenses. For this, Alsbridge shares five points that companies should keep in check in evaluating the coherence of an outsourcing setup with organizational goals and strategies.
1. Contract Terms - An agreement in form of a contract is binding and enforceable. Thus, one should take the time to review and understand the terms of an agreement. The service definition, terms for payment and termination, and governance are some of the most essential areas in a contract. Due diligence in evaluating these details can go a long way.
2. Statement of Work (SOW) - This is expected to provide a precise and transparent definition of service that can be expected from the service provider. As far as responsibilities and roles are concerned, SOW also applies to the client performing his end of the bargain. Specified market-based “towers” to organize the SOW was proposed by Alsbridge. For instance, these towers are Server Management, Contact Center Management, Applications Development, etc. This classification of services or SOWs allow for easier comparison of providers. Also, you will be able to easily determine the actual cost of services per contract term.
3. Service Levels - The Service Level Agreement outlines the terms of service of your provider. The terms and clauses in this contract are directed to protect your interests by ensuring a commitment from your provider. This commitment covers the promised deliverables and the quality of output agreed upon.
4. Transition and Transformation - A description of the transformation across goals and milestones should be clearly articulated in documents at the onset of the agreement. This should address concerns such as turnover, objectives, roles and responsibilities, change management, status reporting, contingency plans, and staff policies.
5. Pricing - As you get accustomed to an outsourcing setup and as you reap its profitable benefits, the cost of outsourcing will generally decrease over time. When starting out with this business solution, it is best to contract a provider with quotations that are based on market prices. This conveys the idea that your deal with your provider is one that is safe and reliable.
There have been proposals raised within the US Congress that are aimed at controlling the advancement of offshoring because of its purported negative effects on the local economy. As the midterm election campaigns are coming up, it has been revealed that action plans on offshore outsourcing is an important issue to voters. According to the NBC News and Wall Street Journal Poll, 68% of the population think that most US companies outsource business to lower-wage countries.
Even with the public view on outsourcing and its vast influence as a disputed business trend, the bills that seek to limit offshoring are hardly ever successful in changing the way the industry stands. Patrick Thibodeau of Computerworld enumerates the primary reasons:
1. Offshore teams can work their way around new laws. A bill that caused a $2,000 increase in the application fees of H-1B visas was recently approved. This increase applies for companies with visa holders comprising half of the total manpower pool. An Indian company denounced the bill and said that this mandate will not change their strategic plans, despite the additional expenses. The higher visa fees will cost the said company approximately $15-20 million and its management said that this expense is “manageable”.
2. Congress is not expected to enforce the “50-50 rule”. The bill that offshoring companies fear the most is the bipartisan proposal from US Senators Grassley and Durbin. This legislation proposes that the H-1B or L-1 visa holders in a company should make up half the total number of employees in that company. Outsourcing firms take different sides on this issue - while some think that this will not affect offshoring activities, some companies expect to hire less employees from offshore locations. A number of firms see this mandate as an opportunity to increase the scale of hiring locally because of the cost savings on visa application, allowance, and transportation costs.
3. Exports and trade matter. Ohio Governor Ted Strickland recently signed an agreement that would encourage the influx of offshoring firms and employment opportunities for non-locals. This agreement with an Indian firm is valued at $108,000 and promotes Ohio as a prime destination for foreign direct investment, according to the source of Computerworld. Strickland seems to be continuously shifting sides when it comes to his stand on offshoring, but when asked about his position on the matter, he said, “We are very well aware of the importance of trade and we highly value our trading partners. Ohio firms sold $381 million in goods, principally machinery, aircraft, and medical equipment, to Indian markets last year."
4. The outsourcing trend is not likely to be changed by any legislation. A lot of offshoring companies are rapidly expanding in operational scale, boasting of double digit growth rates and continuous employment activities. It is safe to say that the trend on offshoring will not dwindle any time soon because the industry will always find a way to strategically adapt to legislations that causes a rise in its costs.
5. Trade agreements are being worked out by the federal government. US and Indian negotiators are conceptualizing a totalization agreement that would exempt Indian firms from paying Social Security and Medicare taxes for temporary visa workers. This would reduce the expenses of H-1B workers by 14%. Any increase in the application fees of H-1B visas can be neutralized by this law that brings down the total cost of hiring offshore.