FINANCE AND ACCOUNTING OUTSOURCING MARKET HEALTHY BUT CHARTING A
DIFFERENT COURSE FROM OTHER SECTORS, ACCORDING TO
EQUATERRA MARKET ASSESSMENT

HOUSTON (May 23, 2007) – Despite skepticism about the value of multi-process finance and accounting outsourcing (FAO) efforts, the market is alive and well but has a different trajectory than other business process outsourcing (BPO) markets.  This according to a just-released EquaTerra Perspective paper entitled, “The Issue: How Real Is the Finance & Accounting Outsourcing Market?” The paper blends insights of the firm’s sourcing advisors with findings from recently-conducted EquaTerra studies, such as¹ one in which 30 percent of respondents stated they had already undertaken FAO and another 10 percent were in the process of doing so.  Equally important, of those buyers that had undertaken outsourcing, over one-third planned to expand efforts, and less than 5 percent planned to curtail or eliminate them.

While these findings demonstrate FAO market strength and growth, EquaTerra research shows that its profile is different from that of HRO or ITO.  According to the Perspective paper, those differences include²:

• Multi-process deals are smaller and one or two process deals are still popular.
• FAO is often coupled with alternative sourcing strategies, like shared services, as well as internal process improvement efforts that are undertaken in advance or in lieu of outsourcing.
• India-based service providers are making solid FAO inroads typically through point-solution deals and nearly always in accounts in which they are already performing IT work.
• Mid-market demand for FAO is strong, particularly in accounts payable, and is attracting both Indian and Tier-One multinational service providers’ attention.

“Buyers of FAO tend to be more prudent and thorough in their outsourcing efforts than buyers of other outsourcing services, in part because of their role within the organization and sensitivity to risk,” notes Bob Cecil, Executive Director, Business and Financial Advisory Services, EquaTerra.  “Their behavior also is driven in part by the complex requirements associated with various regulatory compliance efforts and making sure that they are not at risk because of outsourcing.  However, that is not dissuading them from participating in global sourcing efforts, and that is reflected in the number and size of deals the past few years.”

Cecil advises buyers to view their FAO options from the following three perspectives:

• Comprehensive multi-process FAO with integrated process, organization and technology – an integrated provider model – is best suited for buyers that truly don’t want to focus on these processes as a core competency and want someone else to be a lead partner in the transformation. Traditional multinational service providers lead the way for this model.
• The “virtual captive” or “managed asset” model appeals to buyers that are more risk adverse or already have completed most of the process and technology transformation. These buyers are looking for a partner to operate and continuously improve, but not transform. Typically, they will consider multiple processes with a provider.
• The single or few-process “lift-and-shift” model often is one pushed by many of the other Indian providers. This model also appeals to the risk adverse.  Buyers must be careful, however, not to get locked into a service provider with limited process and IT capability that will be unable to sufficiently take the buyer to the next level.

The Perspective paper concludes with critical questions that potential buyers should consider before making any major decisions:

• How does your F&A organization compare to your peers that have outsourced?
• What are the objectives for your F&A organization in the next year? Next three years?
• Do you have an offshore strategy?
• Have you explored ways to leverage outsourcing service provider technologies when evaluating your objectives and strategy?
• Are you able to improve cash flow with service provider processes and technologies?

The answers to this short list of questions will help answer the question of whether FAO is right for a particular organization.

EquaTerra’s, “How Real Is the Finance & Accounting Outsourcing Market” Perspective paper also contains additional information on how outsourcing service providers are responding to the unique needs of the FAO market as well other essential questions for buyers of FAO services. To obtain a copy of this paper, please go to: http://www.equaterra.com/KR/research/how-real-is-the-FA-outsourcing-market-all.aspx

¹ EquaTerra Service Provider Pulse Survey, 2006
² EquaTerra Market Study, 2Q06