finance and accounting function outsourcing analysis · finance and accounting function outsourcing...
TRANSCRIPT
Finance and Accounting
function outsourcing analysis
TPG Advisory Practice srl
BB&TP, Building A2, 1st Floor,
42-44 Bucuresti-Ploiesti St.,
Sector 1, Bucharest,
013696, Romania
Phone: +40 (0) 21 36 07 70/71
Fax: +40 (0) 21 361 07 72
Contents
Today’s realities……………………………………………………………..3
Major global trends in the finance and accounting (F&A) function…….6
Why do companies outsource?..............................................................9
What do companies outsource?..........................................................12
Insights from 2012 global outsourcing survey…………………............17
How TPG can help you?......................................................................23
Demands
Company Strategy
Investors
Internal Customers
Competitive Pressures
Regulators
Finance functions are under significant pressure to drive productivity
improvements and maximize the ROI of the organization’s resources and
capabilities.
Trends Impacting Finance Functions
• Business Performance
• Management and Predictability
• Cost Focus
• Risk Management
• Earnings Transparency
• Adaptability
= Finance ROI Value of Finance
Cost of Finance
Today’s realities (1/2)
4
Having a clear vision of how finance and accounting function should
support the business is critical
Business insight
(decision support)
Compliance
&
Control Efficiency
Current view Aspirational
Today’s realities (2/2)
5
Trends in F&A Function (1/2)
Transaction
Processing
Decision
Support
CFO
Decision Support
embedded in business
Transaction Processing
(outsourced, Shared Service Centre)
Specialist expertise
(Tax & Treasury)
• Finance and Accounting (F&A) account for
business activity as opposed to undertaking it -
but it should be process focused rather than
create transactions.
• F&A support decision making – but is not the
decision maker.
• F&A focuses the business on long term
profitability and shareholder value - but the
business is responsible for making it happen.
• Smaller finance and accounting function (cost of Finance Function moving towards 0.4% of revenue)
• Shifting emphases from 75% Transaction Processing and 25% Decision Support, to 25% Transaction
Processing and 75% Decision Support.
• Decentralise Decision Support and integrate with business team.
• Create shared services or outsource transaction processing.
• Create centre of excellence for tax and treasury.
• Organise around the processes and outcomes: Revenue Cycle
Expenditure Cycle
General Accounting and Reporting
Profitability and Cost Management
Tax management
Treasury Management
7
What are the main trends?
What should be within Finance and Accounting?
• Focus on value creation and business performance enhancement:
focus finance on its internal business customers.
develop business analysis and communication skills.
• Strengthen role in shareholder value creation and decision support. The major elements include:
lead the organisation in developing a shareholder value in decision making.
build business adviser relationships with the business units.
provide additional decision support capacity within treasury and tax to capitalise on their high impact on
shareholder value.
build stronger linkages between treasury and tax.
support a centralised financial strategy capability seeking internal and external major opportunities.
• Strengthen control of policy and standards through:
deliver greater control of policies and standards.
provide stronger control over balance sheet assets.
centralise business planning cycle to ensure consistency of planning.
control standard cost concepts, tax and treasury.
Trends in F&A Function (2/2)
8
• Smaller Finance Function challenging against best practices.
According to the best practices, companies which incur high revenues, operate the finance and accounting
function at a cost that is only a small percent from the revenue and require up to seven times fewer full time
equivalent staff (FTEs) within the finance function than an organisation with smaller revenues.
Benefits of outsourcing (1/2)
Financial
• Generates
shareholder value:
- Up-front premium
- Cost reduction
- Economies of scale
- Fixed to variable
cost
- Release of capital
Technological
• Scaleable
platforms
• Facilitates greater
systems
development and
infrastructure
upgrades
Strategic • Focus on core
competencies
• Better morale
• Defined service
standards
10
Benefits of outsourcing (2/2)
Outsourcing finance and accounting function plays a central
role in the business transformation:
• Catalyst for change
• Source of skills :
– Transformation and other specialist skills
– Secure existing skills
• Delivery of financial benefits :
– Deliver lower cost base
– Share / pass on attrition risk
– Secure investment commitment
– Share / mitigate one off costs
– Secure underwritten economics
11
Transaction management
functions such us order-to
cash, purchase-to-pay, etc.
Typically Includes:
Only low risk, manually
intensive, transactional
processes are considered for
outsourcing.
Light Option
14
Light Option
+
• Business risk functions
such us treasury and tax.
Extended scope of processes
considered for outsourcing
including reporting and
compliance functions.
Regular Option
15
Regular Option
+
• Business support functions
such us management
reporting, planning
&forecasting etc.
All finance sub processes
below CFO and core strategic
functions are eligible for
outsourcing.
Deluxe Option
16
Which option best describes your company’s current and future
sourcing plan for the following business functions?
Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey
18
• The expected future state of all
business functions shows an
increase in outsourcing.
• Finance and Human Resources
functions are expecting the largest
percentage increase in outsourcing
activity.
• Information Technology led all
functions categories with a
combined 76% of respondents
partially outsourcing the function. 11%
24%
32%
40%
30%
37%
42%
76%
12%
12%
9%
2%
16%
16%
11%
5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Sales/Marketing support
Procurement
Real Estate/Facilities
Legal
Huma Resources
Finance
Operations
Information Technology
Currently uses outsourcing Expected future increase in outsourcing
What factors/components do you feel are most critical to a
successful outsourcing relationship?
Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey
19
• The ability to partner and
clearly communicate
expectations are the most
important success factors to
respondents.
• Contracts and the joint
client/outsourcing company
management team are
generally seen as somewhat
important, but ineffective
without the other key
components. 6%
5%
8%
7%
15%
9%
49%
7%
10%
9%
10%
14%
34%
15%
0% 10% 20% 30% 40% 50% 60% 70%
A strong internal management team of the service provider company
A strong account management team of the service provider company
Detailed contract terms and conditions
Consistent client and service provider company communications
Strong joint client/service provider company governance of the agreement
Well engineered service level agreement
A spirit of partnership between client and service provider company
Vey important Important
How effective is the management of your outsourcing service provider
company organization/function in meeting the following objectives?
Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey
20
• While most respondents
believe their internal
organizations are competent
across all dimensions, several
areas stand out for
improvement.
• Generally, the management of
the outsourcing services
providers organizations are
viewed as being effective at
“transactional services”, but
fell short when it came to more
strategic, “advisory services”. 32%
41%
43%
49%
51%
54%
55%
55%
56%
58%
66%
48%
39%
48%
42%
44%
38%
37%
34%
37%
33%
31%
20%
20%
9%
10%
4%
8%
8%
11%
7%
9%
3%
0% 20% 40% 60% 80% 100% 120%
Ensure service providers meet process improvement and innovation expectations
Ensure improvement by implementing industry leading practices
Effectively improve collaboration and reduce conflict of interest among service providers
Build service provider governance processes and controls
Manage successful completion of transition
Control scope through structured processes
Ensure service providers' adherence to commitments
Proactively management issues, risks and disputes
Maintain an independent and unbiased approach to service providers
Perform necessary financial planning
Ensure invoicing accuracy
Effective Somewhat effective Not effective
What were the objectives of your most recent outsourcing initiative?
Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey
21
• Reduce operating costs is chosen as very important by the most respondents.
• The next important factor is improved customer service, demonstrating there are more drivers to
outsourcing than just cost reduction.
• Overall, actual cost reductions through the most recent outsourcing experience are lower than expected
with 53% of respondents anticipating significant savings (greater than 10% cost reduction), while only 42%
experienced significant cost reductions.
4%
11%
17%
17%
20%
20%
42%
62%
10%
42%
25%
25%
23%
29%
31%
25%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Improve controls
Access more flexible HR models
Desire to consolidate
Leverage new technologies
Gain tax advantages
Gain competitive advantage
Improve customer service
Reduce operation costs
Very important Important
29%
33%
17%
9%10%
1%
37%
25%
19%
4%
9%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%-10% 11%-20% 21%-30% 31%-40% Greater than 40%
Costs actually increased
Anticipated Achieved
24%
24%
24%
24%
24%
29%
38%
48%
52%
0% 10% 20% 30% 40% 50% 60%
Lack of vendor knowledge of my business
Lack of vendor innovation
Attrition of key resources
Lack of business case attainment
Sub-par vendor resources
Lack of timely project/service request execution
Sub-par vendor performance
Lack of service level attainment
Vendor underestimated scope/effort
Did the most recent outsourcing experience live up
expectations?
Source: Outsourcing, today and tomorrow-Insights from Deloitte’s 2012 global outsourcing and insourcing survey
22
• Most respondents (76%) are either extremely satisfied or satisfied with their most recent outsourcing initiatives
• Underestimating scope is the most often reported problem with most recent deals, followed by outsourcing
service providers being unable to meet service levels.
7%
16%
23%
69%
Extremely satisfied
Neutral
Dissatisfied
Satisfied
TPG provides a holistic view of benefits derived
from F&A outsourcing
24
Promote a holistic view of outsourcing benefits, which includes base
costs plus better practices and accounting and finance management
Main cost of the finance and
accounting function:
Employees’ cost
Processing cost
F&A applications
IT infrastructure
Facilities
Telephony
Better accounting and financial
practices.
Quantifying the additional
business benefits, for example: Avoiding duplicate invoice
payments.
Collection and applying cash more
efficiently.
Capitalizing on negotiated
discounts.
TPG can provide professional accounting and
finance services for F&A processes
25
TPG offers cross-functional
processes for free which can
ensure a smooth outsourcing and
high quality services:
- Finance and accounting
procedures and controls aligned
with global best practices.
- Adequate systems and tools.
- Highly specialized personnel.
Functions Processes Sub-processes
Business
support
Overall finance
function
Transaction
management
Business
risk
Order-to-cash
Purchase-to-pay
Payroll and
personnel
administration
Record-to-report
Performance
management
Tax
Treasury
Order entry - billing
Accounts receivable
Credit & collections
Inventory accounting
Purchasing
Accounts payable
Settlement of payables
Payroll
Benefits administration
Financial reporting
Management reporting
Planning & forecasting
Statutory compliance
Strategy & planning
Market risk
Liquidity risk
Bank relationship management
Settlement, accounting & reporting
Intercompany accounting
Business and KPI analysis
Fixed asset accounting
Phase I
Phase II
Phase III
Key