Stan Lepeak, Managing Director, EquaTerra Global Research

This is the eighth and final entry in a 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
• FAO Benefits Sought and Achieved
• How Strategic is FAO Today?
• FAO Success Factors, Risks and Concerns

This blog series has detailed the results from EquaTerra’s FAO market study, and complementary findings from EquaTerra client engagements, that highlight the ongoing growth and importance of FAO as a tool to help CFOs address their own and their organizations’ strategic agendas. FAO is one several tools at CFOs’ disposal, and one that is increasing in importance. While historically FAO was viewed primarily as a means to reduce F&A operating costs, it is increasingly being employed to address more strategic F&A needs such as driving F&A transformation, enabling F&A groups to focus on more strategic activities, and providing access to third-party F&A expertise and skills. Like any business tool, FAO can only bring benefits when it is executed successfully. Most FAO buyers meet with success, but the bar is continually being raised as FAO efforts become more pervasive, complex and global.

While FAO users are correct to focus attention and resources on the operational execution of FAO efforts, they must also think strategically about how to continually improve the benefits delivered from existing and future FAO initiatives. To this point, the last section of the market study examined what FAO users feel is needed to take FAO to the “next level.” This is defined as what are the most important improvements, changes or enhancements required to make FAO more strategic, bring more value to the organization, and help drive improved business performance. Respondents identified their top three choices from a selection of ten factors including, “nothing, going to the next level is not needed/desired.” The figure below illustrates the top three factors identified overall.

• One half of respondents selected upgrade the skills of the service provider team – get the “A team” as the most critical factor in taking FAO to the next level. While on the surface this appears an indictment of service provider capabilities, only 12 percent of respondents selected swap to a new FAO SP with more strategic capabilities. This illustrates that there is more faith in overall service provider capabilities than in the specific teams engaged in an effort.
• The next several factors are clustered in the 30 to 38 percent range. Enabling greater strategic alignment between the corporate strategy & FAO agenda was the second most frequently selected factor, highlighting the need to align the FAO strategy and plan with the overall corporate strategy. The selections of improve outsourcing governance  processes and capabilities and upgrade retained organization skills to become more strategic demonstrates the importance of focusing skills and resources on post-transaction outsourcing governance and management efforts to ensure the intent of the FAO deal is achieved. Outsourcing governance and retained organization challenges are two of the most common root causes EquaTerra finds in problematic FAO efforts.
• Respondents from different sized organizations and from the U.S. and U.K. have different opinions on the top factors. For example, respondents from the largest class of buyers polled ($20 billion+ revenue) are more likely than those from the smallest class of firms ($3-$10 billion revenue) to emphasize improve outsourcing governance processes and capabilities (48 percent versus 31 percent). U.K.-based respondents are also more interested in improving outsourcing governance (44 percent compared to 27 percent for U.S. respondents), while U.S. respondents are more focused on upgrading the skills of the service provider team (52 percent compared to 39 percent for U.K. respondents).

FAO has become a mainstream tool for organizations to deploy to address tactical and strategic F&A needs. The keys to FAO success are to clearly define its scope and goals, adequately deploy staff and resources for sourcing, transition and ongoing outsourcing governance and management efforts, and continually seek ways to improve its performance. Buyers are well served to ensure they have an adequate strategy and the processes in place to address these needs.

Filed under: Finance & Accounting, How to..., Market Trends and News, Outsourcing by EquaTerra