FAO 2010: FAO Benefits Sought and Achieved
Stan Lepeak, Managing Director, EquaTerra Global Research
This is the fifth in an ongoing series of blogs presenting the findings from EquaTerra’s recently completed market study assessing North American and U.K. finance and accounting (F&A) and F&A outsourcing (FAO) market trends. EquaTerra released the results of this market study via a webcast held on January 28, 2010. The blog series has so far addressed the following points:
- Key items on organizations’ corporate agenda for 2010
- What is on the CFO’s agenda
- Strategies and tactics to enable the CFO’s agenda
- FAO Future Plans
The use of FAO continues to gain relative importance, and in some cases prominence, over other tools to enable F&A change such as investing in more and better IT tools and solutions and the use of shared services centers. While all tools are relevant, IT and shared services investments have not taken some F&A organizations far enough down their improvement paths. One of the strongest indicators of FAO success is the decision to expand its use and scope. As noted in the last blog, FAO users polled in the market study are expanding FAO usage in a variety of ways and only a very few are pulling back from FAO efforts.
A more explicit test of FAO success is whether it achieves its original goals. EquaTerra asked market study respondents to identify the key benefits sought from their FAO efforts and assess to what degree these benefits are being achieved. Respondents selected from a list of 13 potential benefits and goals (including benefits not clearly articulated/defined) and ranked their achievement on a one to five scale where one represents benefits not at all achieved and five represents benefits fully achieved.
The benefit most frequently sought in FAO, not surprisingly, is reducing total F&A operating costs, identified by 80 percent of respondents. It is clear, however, that organizations pursue many parallel FAO goals. Other common benefits sought include gain costs savings to fund F&A transformational efforts and dedicate or redirect the focus of the F&A group to more strategic activities. The key, as noted above, is to what degree these benefits are being achieved.
- FAO users are having the greatest success in achieving the benefit most commonly sought in FAO efforts. The average respondent score for reducing total F&A operating costs is 3.65 on the five point scale.
- Using cost savings to fund F&A transformation efforts scored 3.54 and gaining access to external F&A skills, knowledge and expertise via FAO scored a 3.51.
- It is notable that all benefits identified for the scope of the study scored above the 3.0 mid-point on the one to five scale. This highlights that no major benefits sought from FAO are consistently not being achieved.
Rankings are generally consistent across respondents from different size organizations and between U.S. and U.K. respondents, though there are some variations:
- Respondents from the smallest organizations polled ($3-10 billion+ revenue) are less likely (2.79 compared to the overall score of 3.18) to find value in FAO helping to better address regulatory compliance and related requirements.
- U.K. respondents were more positive on this same compliance metric, scoring it on average at 3.55 compared to their peers in the U.S. whose average score is 3.02.
The prioritization of benefits sought illustrates that buyers are employing FAO to achieve both tactical goals, such as reduced costs, as well as address more strategic issues, such as access to external F&A knowledge and expertise. The question is, does this imply that FAO has sufficiently evolved to become a means to address both operational and strategic F&A needs, helping to reduce F&A costs but also bringing strategic business value to the organization? Or is it still a tool primary applicable to administrative and back-office F&A activities, and a method to reduce F&A costs?
Next up: How Strategic is FAO?
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