Jim Muir, director at AutoRek, examines how CFOs can successfully secure value from the process of business outsourcing.
With chief finance officers (CFOs) not wishing to undertake relocation exercises every few years to lower cost wage locations due to the inherent quality and risk issues associated with these moves, many are now doing smaller outsourcing projects focused on optimising specific finance activities of their business to third party providers to secure longer term stability.
By using Business Process Outsourcing (BPO), it is possible for finance executives to enhance flexibility, improve business processes and reduce costs for processes such as financial reconciliations, collections and cash allocations. However, many face a conundrum around whether to do the exercise quickly to minimise disruption from “expertise exodus” or to re-engineer processes before the transfer of work.
Embed best practice into the organisation before work is transferred
It may seem obvious that best practice should be embedded within the organisation before work is transferred, however many companies, due to time pressure or a lack of expertise, do not use this as a starting point. This can result in the baseline cost of service being higher and the service levels provided by the outsourcer not being optimised. This can take years to remedy.
Those CFOs considering a move to BPO, or even shared services, should examine what smaller process improvements can be made before outsourcing specialists start implementing plans to transfer work to new teams and locations. By implementing more automation and reducing baseline headcount (and cost!) before the transfer of work, the risk of process failure is reduced considerably as dependency on personal expertise is lessened and best practice can be built into the new service.
Streamline the transition to BPO
Since many outsourcing teams are located across multiple locations, introducing tools that help overcome difficulties in time or language can improve collaboration with new “colleagues”. The installation of more web based technology and common toolsets such as workflow and reconciliations software, which are platform independent, can allow common work queues and increase visibility of causes of process breaks and the required remedy.
The importance of choosing the right advisor
In the past many BPO providers adopted a template approach to new clients where an organisation’s processes were shoe-horned onto a standard service. Many of these providers are lower margin operations and have not invested in the newest technology. As a result, new clients had to make do with processes and IT infrastructure that potentially was less advanced than their current estate. Often “wages arbitrage” has compensated for such a compromise but this is not a longer term solution.
The choices available to the CFO are increasing though. In recent years there has been a number of new players enter the advisory market, as the industry expands in volume and moves into new spaces. This is good news for the CFO since there are more choices available to businesses and approaches evolve quicker. Now there is a marketplace which consists of BPO advisors, large service firms that have “captive” BPO advisory practices, and any number of niche businesses that focus on a particular industry or geography and functionally-focused firms who have deep expertise within a particular area.
As a result, finance executives should ensure that they take as much care as possible when choosing BPO advisors. A specialist CFO advisory firm brings granular expertise and sympathy for the CFO’s agenda which should always have a controls and risks agenda front and centre. Generic “slash and burn” approaches are unlikely to fulfil all of the medium term objectives of the CFO who will have a greater need than ever to demonstrate governance and compliance on a range of issues from Balance Sheet Certification to reconciliations.
In conclusion, in the hurly-burly of post implementation focus on service delivery, it is harder than ever to effect change to processes especially across multiple locations and multiple providers. The need for best practice to be built in to the transitioned activity set is greater than ever as the longevity of lower cost salary structures cannot be relied upon. Technology has a greater role to play in reducing the exposure to wage inflation and “localised” work-arounds. Only an expert BPO provider, with a strong CFO advisory focus, can sympathise with the finance executives need to balance short term cost reduction with stability and an enhanced controls framework.
