Monday, December 6, 2010

F&A Outsourcing Trends for 2011

F&A Outsourcing Trends for 2011

Looking into the Crystal Ball

The first decade of the new millennium was truly the ‘hot decade’ for F&A outsourcing. Across global markets, we witnessed numerous corporate clients looking to outsource or offshore their back office work. Add to this the considerable media hype and you can see why F&A outsourcing was clearly the flavor of the season.

So what does the next decade have in store for F&A outsourcing? One school of thought is that since most of the major F&A contracts are already in place, the residual demand levels may not be impressive. The second factor which is highlighted is that as the global economy is slowly recovering from one of the worst recessions experienced in the last 50 years, many a corporation is adopting a ‘wait and watch’ approach before plunging into a drastic reorganization of their existing F&A structure.

However, there is a second school of thought which is predicting a far more positive scenario, as far as the coming decade is concerned.

The demand potential is still considerable:

First is the belief that the demand potential is still quite substantial; there are still many untapped F&A outsourcing opportunity areas. In specific industries outsourcing F&A processes is still viewed with trepidation, and a concerted marketing effort from BPO service providers will go a long way in realizing the potential of these untapped market segments.

Focus on the width & depth of outsourcing:

Certain market segments (like banking services) have adopted F&A outsourcing, albeit in a limited fashion. In these specific market segments there is still room for outsourcing several high-end elements and processes successfully. Gone are the days when Finance BPO limited itself to the simplest elements of Accounts Payable and Accounts Receivable work. For this to happen, however, the Financial BPO service providers will have to demonstrate their competencies in high-end areas such as business analytics and management reporting.

Increased value of the outsourced activities:

Many firms have benefited from outsourcing more value-based and strategic activities in the management reporting and analytics area. The thin red line that divides what can and cannot be outsourced is steadily shifting up the value curve as suppliers gain more capability and expertise, while clients gain confidence.

The impact of new technology:

Historically, F&A outsourcing has not been a technology intensive service. The focus has been more on adhering to processes, backed by a strong manual work component. This is starting to change and for the first time, a growing number of F&A suppliers are offering standardized IT platforms with their F&A services. While there are challenges to overcome regarding data security, ERP architecture & integration, these options will continue to evolve, particularly in the near term for mid-market buyers who typically are more inclined to buy in standard solutions.

More evolved F&A deals:

A key trend that we are seeing today is that a number of clients who have already entered the F&A outsourcing space are now moving into the next cycle of contract negotiation. Their previous experience has been an invaluable learning ground. They are more aware of what to do, and more importantly, what not to do. As a result, they are focusing on setting up a far more evolved outsource environment and are taking full advantage of the same. Today, we see them demanding a wide range of services, at very low rates, which will result in substantial cost savings for at least the next decade.

In summary: trends in F&A outsourcing are changing considerably as both outsourcing service providers and clients are moving towards higher expectations and demands for outsourced services. These changing trends will certainly offer new opportunities for professional F&A outsourcing service providers in 2011. It seems very likely that these trends will ultimately result in an increasingly competitive, mature and sophisticated outsourcing market.

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