In the entire outsourcing universe, Finance and Accounting (F&A) processes are the second-most popular outsourced services after application development and maintenance. F&A witnessed huge growth between 2005-08, before the recession slowed things down.  During these years, the focus was primarily on cost reduction, with a lot of transactional work displaced from onshore accounting staff to offshore talent bases. Accounts payable remains one of the most popularly outsourced functions, and has been a great success in reducing operating costs for client organizations.

A new transformational approach to F&A outsourcing has emerged over the past two years.  The BPO industry is moving past the cost benefit advantage, towards others such as process improvements, improved technologies and access to solid systems platforms. Organizations are considering outsourcing their F&A functions as part of a larger multi-function and IT outsourcing agreement. This allows companies to focus on critical strategic issues instead.

Apart from multi-process deals, there is an increase in the number of agreements which include the scope of diverse engagements. Elements such as customized and complex accounting processes, management reporting and financial analytics are getting included in such deals. Other complex functions include financial process consulting, risk management, business intelligence and innovation support. These services act as critical differentiators among F&A providers, and often give an edge over other vanilla F&A BPO players.

A third approach involves providers with an expertise in business consulting. These companies are suitably placed to bring long-term innovative capabilities to the table, which will help companies to develop high-value change programs and ultimately strengthen their business strategy. With such services, providers are taking a leaf out of established management consultants such as McKinsey and PwC who have already established global advisory practices.

All these changes are reflective of a mature and evolving service provider base, who are looking to go beyond the usual “cost saving” approach and focusing on helping their clients gain new ways of achieving productivity and long-term growth. This time is right for buyers of these services to push for outcome-based metrics when initiating or re-negotiating F&A deals with service providers. Their outsourcing relationship can be used to create a new culture that is more consistent with their business goals. A popular output based metric for an outcome based pricing model focuses on payment collection, with the provider having financial incentives in proportion to the amount of money collected, Contrarily, reporting and ledger processes are key input based metrics whereby the service provider only makes small gains with higher number of completed processes. Output metrics within F&A will thus encourage service providers to bring new ideas for their clients’ businesses, and in return, be duly rewarded upon achieving their clients’ objectives.

Adopting this multi-pronged approach towards F&A BPO outsourcing will drive the humble accounting back office of an organization to transform beyond a cost center, to act as a platform for growth, innovation and a continuously improving business process.

- Sameer Murdeshwar, Analyst, ValueNotes Sourcing Practice