Finance and Accounting Outsourcing

The utilization and application of finance and accounting outsourcing (FAO) proceeds to gain traction globally. The FAO market, as measured by the number of contracts signed for the more eminent FAO agreements, has steadily increased since 2000, and has risen by upwards of 45 percent from 2005 to 2007 (Fersht).

In recent years, several high-profile outsourcing agreements covering multiple finance and accounting processes were finalized. Among these, were agreements between Texas-based Kimberly-Clark corporation and FAO provider Genpact as well as the British Broadcasting Corporation (BBC) entrance into a 10-year contract with outsourcing provider Xansa. Kimberly-Clark corporation were freed from the labor of administrating their prominent expense management dealings and BBC reported that its arrangement with Xansa will help it conserve more than $375 million over the course of their relationship (FAO Today News)

The implementation of multi-process FAO began in 1990 in a London hotel in a meeting between a BP CFO and a partner at the consulting firm Accenture. Through their discussion regarding the challenges faced by the oil company, they derived a new financial structure in which Accenture would take over the majority of the CFO’s accounting function.

In the proceeding years, BP observed financial benefits with this arrangement and the cost of outsourced processes decreased my and estimated 50% over the term of the relationship. Since then, up until present day, the worldwide growth of FAO developed gradually, with multi-process arrangements beginning to develop in 2003 from the single-process agreements which had become the standard.

Despite the perceivable growth in the FAO market, it is still not a fully matured discipline. Numerous surveys conducted indicate that buyer dissatisfaction remained surprisingly high. However, the majority of unsatisfied buyers asserted that they would be interested in outsourcing a few processes up to every process which isn’t considered “core,” (CFO Research Services 2006). From these contradictory results, it can be concluded that Outsourcing promises valuable opportunities, but poses challenges and risks; and outsourcing agreements are being mismanaged.

The current efforts are to develop professional standards similar to those that apply to accountants, lawyers, and professions as such. (The Wall Street Journal). A recent and more in-depth study on the evolution of outsourcing concludes that the three most significant areas for improvement are:

  1. monitoring and managing the benefits;
  2. selecting the outsourcing provider; and
  3. involving the “right people” and culturally aligning the outsourcing buyer and provider (KPMG, 2007).

Improving in these areas, as well as effectively managing the overall outsourcing relationship can be achieved by understanding and addressing the challenges and risks that engender mismanagement.