FAO 2010: Strategies and Tactics to Enable the CFO’s Agenda
Stan Lepeak, Managing Director, EquaTerra Global Research
This is the third 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 first blog reviewed the key items on organizations’ corporate agendas for 2010, and the second blog analyzed what is on the CFO’s agenda. Having defined these agendas, the next step is to assess and determine the best tools to employ to successfully address them.
There are a variety of tools at CFOs’ disposal to affect change. Some are internally focused, such as process improvement and reengineering efforts, or quality initiatives such as Six Sigma. Investing more in new, and ideally better, IT software applications and systems is a perennial favorite but one that has fallen from favor not only due to tight economic times but also because many F&A organizations have already made extensive IT investments. Relatively new and more dramatic tactics involve the expansion of shared services centers (SSCs) or the increased use of FAO.
F&A organizations have been implementing both captive SSCs and FAO for a number of years. What has changed over the past five-10 years is the scale and scope of SSC and FAO efforts – particularly in best-in-class user organizations – and their usage to support more strategic F&A activities (e.g., planning, analytic and compliance).
Many SSCs, however, have not achieved best-in-class status. There are many reasons for this, including the inability to tap into skilled resources, inadequate support of IT applications and systems and lack of a clear strategy for improvement aligned with corporate goals. The captive SSC model has started to fall into disfavor in some F&A organizations as the challenges – and costs – associated with building and managing effective, competitive operations has proven more burdensome than anticipated. As a result, FAO is growing in importance as an alternative to SSC expansion. FAO now often encompasses a full range F&A processes serving multiple business units and geographies, and delivered from multiple lower cost, global service delivery locations.
So the challenge in 2010 for CFOs and their F&A organizations is to identify and prioritize options and tools to use to achieve their agendas. Addressing this point in our recent market study, survey respondents ranked the importance of eight different tools, tactics and initiatives they could use to address the agenda items previously laid out. The rankings are on a one to five scale where one represents not at all important and five represents extremely important.
- The most important tactic identified by study respondents is undertake internal process improvement and reengineering efforts of F&A processes, scoring3.71 on the one to five scale.
- Implement or expand use of third-party providers and shared services centers (including offshore captive centers) to support and deliver F&A processes and services scored a 3.62.
- Upgrade and improve the overall F&A staff and talent pool also scored a 3.62.
There is only limited variation among the top five rankings ranging from 3.71 to 3.46. And there are no major variations in rankings based on respondent geography or organization size except that respondents from the smallest class of organizations polled ($3-$10 billion revenue) were somewhat less likely to favor FAO.
Clearly CFO’s recognize there are multiple tools available to enable their agendas. They must define a portfolio strategy and multi-pronged approach to change, using a range of tactics often including SSCs and the greater use of FAO. While this complicates the process, the upside is that the breadth and range of tools and tactics available to support change is greater than ever.
Next up: FAO futures
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