Outsourcing the Finance Function
Both retained functions and outsourcers are being asked to provide more value creating skills.
Business Process Outsourcing (BPO) is a growing phenomenon that is having a major impact on finance functions worldwide. For example, finance and accounting outsourcing (FAO), is becoming a widely adopted component of finance restructuring in large organisations. Last year alone, Unilever, Cadbury Schweppes, Lindt, Diageo, GSK and other large multinational firms all embarked on FAO projects.
This outsourcing represents a threat and an opportunity to finance functions but the overall effect is one of increased global demand for professional accountants.
According to Rick Sturge, CIMA’s director of employer and strategic development, technology is enabling accounting processes to be undertaken remotely from the business. It is also removing the need for people to undertake many of the traditional transactional activities leading to more focus on analytics and business decision support.
Sturge explained: 'This globalisation drives the need for consistent skill, application and quality across different countries. In outsourcing arrangements, the retained function is freed up to focus on driving the business and creating shareholder value, while the outsourcer is progressively being asked to provide more value creation skills within the service delivery team. Both of these are creating more need for CIMA skills.'
Geography is history
Even five years ago companies and finance functions underestimated the impact of globalisation, and in particular the impact of technology and cheaper telecommunications, on business.
Global competition to drive shareholder value by improving upon margins, organisational control and risk management is leading companies to view BPO less as an opportunity for cost reduction and more as an opportunity for complete business transformation. Practices such as outsourcing, off-shoring, business partnering and a variety of innovative collaborative relationships are now stretching and blurring the traditional boundaries of organisations.
Companies can now plug into the skill-sets most able to deliver the results, whether those are technology, expertise or infrastructure, and whether they are based in China, India or central Europe.
Companies that use BPO effectively, both availing the service and providing the service, can gain competitive advantage. This is where the benefits of Knowledge Process Outsourcing (KPO) come into play. KPO can free up management time to allow greater focus on driving shareholder value – the true role of the chartered management accountant.
The skill-set of the management accountant that lends itself to value creation and strategic decision making will not be threatened by BPO but will be increasingly in demand.
Focus on business partnering
Dr Martin Fahy, director of development, CIMA Asia Pacific, has developed the BPO debate by analysing the growing trend for leading firms to move beyond traditional FAO towards the more sophisticated role of KPO.
He explained: ‘While BPO is not a universal remedy, leading edge organisations use selective, well-executed and well-managed BPO to drive finance efficiencies and to free up financial staff to focus on business partnering and financial leadership.’
There will also be continued advances in technology that will further enhance the ability of multi-nationals to outsource certain business processes. Mitchell Baker, CEO of Mozilla, said: ‘We are in a phase where the web is going from text-based to multi-media based. We used to think of hyper-text links as amazing, but that was a flat world. Now we’re entering a spherical world where we’ll see dramatic advances as the web integrates audio and visual elements.’ These further technological advances will drive more global outsourcing.
One new business model to emerge as a result of BPO consists of a network of participants collaborating to serve a common customer. The status of the participants - employee, supplier, contractor or business partner - is less important than the skills and knowledge they bring to the network. Relationships are based largely on trust. The decision-making, performance measurement and risk management processes within the network create many challenges for management and finance staff of the participants.
Further Reading:
Outsourcing the finance function has become an increasingly strategic issue for many organisations recently. Businesses are under increasing pressure to improve performance and reduce costs.
Shared Service Centres; Process Improvement
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