finance transformation the outsourcing perspective

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FINANCE TRANSFORMATION – THE OUTSOURCING PERSPECTIVEA FINANCE & MANAGEMENT SPECIAL REPORTSR31 | DECEMBER 2010

It is six years since the Finance & Management Faculty produced its specialreport ‘From outsourcing to offshoring’. In that time I expect that the vastmajority of large businesses will have considered outsourcing at some point,and many will have taken the plunge with varying degrees of success.

During those six years we have also experienced the international creditcrunch and are said to be entering into the age of austerity. Thesecircumstances have required all businesses to review their cost base and toconsider if their structure is fit for purpose. The finance function is notexempt, and has no doubt been under the spotlight in many organisations.

With this in mind this special report ‘Finance Transformation – theOutsourcing Perspective’, is timely. Many of the key issues from 2006 remainthe same: deciding what and with whom to outsource, negotiating terms andmanaging the associated risks. Other aspects have evolved, including therange and attractiveness of outsourcing locations available and the use ofmore blended models combining onshore, offshore, in-house, outsourced andvarious styles of management. You should find these two reportscomplementary; for details of how to access the previous report see thefurther reading section on page 28.

Whilst this report does focus on outsourcing, many of the topics discussedwill also be useful if you are considering other solutions such as in-houseshared service centres. The authors, Capgemini, share their expertise on topicsincluding service level agreements, people management, and innovation andtechnology. Equally whilst this report is aimed at larger businesses there willbe some useful lessons for smaller organisations.

The number of case studies in the report is necessarily limited; however wewould be really interested to hear your experiences. Have you outsourced anypart of your finance function? If so, which? Do you have any lessons that youcould share with your fellow members? We would also be very pleased tohear any questions or feedback that you have. Visit our LinkedIn group andjoin in the conversation at www.linkedin.com – ICAEW Finance &Management Faculty.

EMMA RIDDELL

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FINANCE TRANSFORMATION – THEOUTSOURCING PERSPECTIVEA special report published by:Finance and Management FacultyChartered Accountants’ HallMoorgate Place London EC2R 6EAT +44 (0)20 7920 8508 F +44 (0)20 7920 8784E [email protected]/fmfac

Chris JacksonHead of facultyT +44 (0)20 7920 8525E [email protected]

Emma RiddellTechnical managerT +44 (0)20 7920 8749E [email protected]

Rick PayneFinance direction programmeT +44 (0)20 7920 8451E [email protected]

Caroline WighamServices managerT +44 (0)20 7920 8508E [email protected]

The aim of this series of special reports isto provide faculty members with a reviewof a topical theme within the subject areasof finance and management, offeringboth analysis of the relevant theory andreview of the practical application ofappropriate management techniques.

Comments and suggestions should beaddressed to Emma Riddell.

The information contained in this andprevious issues of this publication isavailable (to faculty members only) on thefaculty website at icaew.com/fmfac

F&M SPECIAL REPORTS... are produced on behalf of the faculty bySilverdart Publishing, 211 Linton House, 164–180 Union Street,London SE1 0LH.T +44 (0)20 7928 7770www.silverdart.co.ukContact: Alex Murray or Hannah [email protected]

© ICAEW 2010. All rights reserved. Theviews expressed herein are not necessarilyshared by the ICAEW’s council or thefaculty. No part of this publication may bereproduced or transmitted in any form orby any means, or stored in any retrievalsystem of any nature without prior writtenpermission, except for permitted fairdealing under the Copyright, Designs andPatents Act 1988, or in accordance withthe terms of a licence issued by theCopyright Licensing Agency in respect ofphotocopying and/or reprographicreproduction. Application for permissionfor other use of copyright materialincluding permission to reproduce extractsin other published works shall be made tothe publishers. Full acknowledgement ofauthor, publisher and source must begiven. No responsibility for loss occasionedto any person acting or refraining fromaction as a result of any material in thispublication can be accepted by ICAEW orthe author(s).

ISBN 978-0-85760-079-0

Chris Jackson is headof faculty, Finance &ManagementFaculty, ICAEW.

Emma Riddell istechnical manager,Finance &ManagementFaculty, ICAEW.

FOREWORD

THE STORY CONTINUES...

FINANCE TRANSFORMATION – THE OUTSOURCING PERSPECTIVE

CONTENTS

FINANCE & MANAGEMENT SPECIAL REPORT December 2010 01

02 INTRODUCTIONMARKET OVERVIEWRecent trends in the sourcing market are discussed, alongwith ways in which outsourcing can benefit your company.

05 CHOOSING A PATHSELECTING THE RIGHT SOURCING MODELHere the potential models and motivations for sourcing arehighlighted, along with the possible risks.

09 THE FINAL SELECTIONMAKING THE DECISIONThe importance of location, pricing, security and ease oftransition are outlined in this section, with information tohelp the decision making process.

13 CONTRACTSCONTRACTUAL ISSUES AND GOVERNANCE MODELSA good sourcing relationship is dependent on establishing aclear and unambiguous contract. Key questions and thingsto consider are outlined here.

15 CUSTOMER SERVICESERVICE LEVEL AGREEMENTS AND QUALITY ASSURANCEThe importance of KPIs, benchmarking and service levelagreements to maintaining high levels of performance arediscussed in this section.

18 HUMAN RESOURCESPEOPLE MANAGEMENT Maintaining a keen workforce is crucial during such massiveorganisational change. We offer some advice on ways toensure a smooth transition.

20 FURTHER DEVELOPMENTCONTINUOUS IMPROVEMENT LEADS TO WORLD CLASSPERFORMANCEHere we look at how to become a world class performer, byfocussing on complexity reduction and operating excellence.

24 PROCESSESTRANSFORMATION THROUGH INNOVATION AND NEWTECHNOLOGYThe possibility of further development from implementingup to the minute technology is assessed.

26 CONCLUSIONTRANSFORMING FAOTransforming your organisation is a challenge, one whichcan benefit from a good sourcing partner.

27 APPENDIXGLOSSARY

28 ADDITIONAL RESOURCESBOOKS, JOURNAL ARTICLES AND MORE

29 PREVIOUS SPECIAL REPORTS

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INTRODUCTION

MARKET OVERVIEWThis introduction provides an insight into the outsourcing market, anddiscusses the recent trends seen in the area, as well as how your companycan benefit from employing this strategy.

Global sourcingThe global finance and accounting outsourcing (FAO)market is part of the global sourcing market, whichencompasses both in-house and outsourcedcentralised sourcing of all business and IT functions.

For a more comprehensive perspective of the FAOmarketplace, it is worthwhile considering thedynamics currently at play on the global sourcingmarket, which continues to flourish, with 498transactions concluded in Q2 2010 (from 444 in Q12010). Yet, though more transactions wereconcluded, they concerned narrower scope and/orshorter terms.

In the period, the market heard about the openingof 38 captives by well-known players such as JPMorgan, Oracle, Microsoft, Western Union, Shell, HP,Huawei and Intel. At the same time, 32 businessprocess outsourcing (BPO) delivery centres were setup, mostly in India.

Though the transaction volume grew, theaggregate annual contract value (ACV) declined. Thegrowth was led by the BPO market, which witnessed

The finance and accounting (F&A) sourcing strategymust focus on cost, quality and flexibility. What ismore, the days of chief financial officers (CFOs)looking to offshoring and outsourcing solely for costand compliance control are gone irrevocably.

In the aftermath of the global financial crisis, CFOsare being compelled to balance cost pressures againstbusiness outcomes. There is a myriad of options fortransforming the organisation’s finance function into a‘business partner’ capable of carving out value byactivating effective finance infrastructure; decision-making support; and enhanced assurance.

That’s why a shared services sourcing strategy –regardless of whether implemented internally or withan external partner – needs to consider how to assurecost reduction and standardisation whilst demandingthat added value be squeezed out of the back office todrive insight beyond transaction processing.

For readers who would appreciate help withdefinitions, we have included a glossary on page 27.

‘A shared services sourcing strategy needs to considerhow to assure cost reduction and standardisation whilstdemanding that added value be squeezed out of theback office to drive insight beyond transactionprocessing’

ABOUT THE AUTHOR

Carole Murphy is vice president at Capgemini Consulting where she leads the globalfinance & employee transformation practice. She joined Capgemini in 1996 and hasbeen vice president in the UK since 2006.

Carole works with global organisations to develop and implement finance and HRstrategy and transformations which incorporate shared services and business processoutsourcing.

Prior to joining Capgemini, Carole worked in industry as a finance controller. Shewas born and educated in Dublin and is a qualified management accountant andlawyer.

For further information on Capgemini, see page 26.


15% and 33% increase in transactions and ACV,respectively (measured quarter-on-quarter). Thebanking, financial services and insurance (BFSI)vertical contributed one-fifth of market activity, ie 102transactions in Q2 2010.1

The FAO market The global FAO market is differentiated by the scaleand experience of delivery that the F&A BPO vendorshave. Based on the value of commercial contractsawarded in the first half of 2010, the top 10 serviceproviders in the FAO space are, in alphabetical order: • Accenture; • Capgemini;• EXLService; • Genpact; • HP; • IBM; • Infosys;• TCS;• Wipro; and• WNS.2

Analysts’ forecasts of market value and growth ratevary within a wide band – they expect compoundedaverage annual growth rate (CAAGR) of between 8%and 11% to between $16bn and $30bn of marketvalue by 2013.

Nevertheless, all analysts predict the market willremain strong and will continue to expand, especiallygiven the fact that overall client satisfaction from FAOcontinues to rise every year.3

Sourcing trends

Trends in ‘why?’Cost saving remains the key criterion for organisationsin the process of defining the right sourcing strategy.But even in low-wage countries such as India andChina prices are rising and margins are becomingtighter. “Today, most F&A BPO deals are with clientsthat want to source F&A administration processesfrom lower-labour-cost locations and garner betterF&A practices. Buyers must look at a provider’squality, vertical market expertise (which is becomingincreasingly important as providers learn aboutspecific industries’ finance needs, such as paymentterms and supplier types), and global delivery modelsto ensure a full evaluation of providers’ abilities.”4

Customers recognise that it is possible for sharedservices to go beyond transactional/operational workto achieve new productivity gains and new revenuestreams by implementing new practices throughunique, creative methods of implementingstandardisation and automation, driving continuousimprovement, and assuring world-class performance.

Trends in ‘how?’Organisations are proactively balancing:• the scope of shared services operations – operating

multiple functions and processes and servicing anumber of business units from global or regionalcentres;

• how they source the services – flexing betweenoutsourced and in-house service delivery under anumber of smaller contracts; and

• where the shared services centre (SSC) operates –leveraging the labour pools, shrinking the costbase, and minimising risks of geographies, acrossthe globe.

Trends in ‘where?’The current BPO offshore delivery locations for F&Aare Brazil, Canada, the Czech Republic, Hungary,India, Ireland, the Philippines, Poland and Romania.

Based on current trends and market activity,Gartner expects China, Costa Rica, Jamaica, Malaysia,Mexico and Vietnam to come to the forefront, asstrong FAO providers.5 In the second quarter of 2010,high offshore activity, ie the most service centres setup, was noted in China, India and the Philippines.6

Low-value transactional processes, requiring limitedlanguage skills, are being located offshore andprocesses requiring customer contact and specialistlanguage skills are tending to stay nearshore for acombined delivery model.

Notably, half of all Top 2000 captive service centresand Top 50 supplier centres set up in India duringthe last year were in Tier 2/3 locations, ie outside themajor outsourcing locations. However, this growthhas been mainly restricted to third-party suppliers.Captives continue to prefer Tier 1 locations.7

Trends in ‘pricing’In the last two years, deals are emerging with ablended pricing model, which also utilises elementsof full-time equivalent (FTE) and transactional pricing.Although the majority of deals are fixed-price orprice-per-FTE based with the supplier expected tostreamline and standardise accounting processes,organisations are looking to suppliers fortransformational services.

The use of service level agreements (SLAs) is alsoevolving. In the first few years of a contract,customers stipulate a number of service levels, and asa deal matures, the number and type of service levelsused is streamlined.8

FAO customers have learned that the success of aservice from a supplier is directly proportional to thecontinued input and guidance of the customer’sfinance and IT team. Research shows that the mostsatisfied F&A BPO customers actively participate inF&A BPO service delivery issues.9 As a reflection of

‘Cost saving remains the key criterion fororganisations in the process of defining theright sourcing strategy’

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this, some contracts provide for gain-sharemechanisms, as well as bonuses for highperformance, rather than penalties for lowperformance. Working in partnership also ensuresalignment, coordination and control of both supplierand business needs.

Fearing that their services will becomecommoditised, as reflected in falling revenues andplummeting margins, suppliers are developingproprietary best practices and processes and areadvising on and suggesting process improvements.The focus on both sides is to move to a more end-to-end process-oriented view beneficial for both partiesinstead of just haggling over the production ofactivities in batches.10

10 Everest Global, Inc.: ‘Global Sourcing, Market VistaQ2 2010’, 2010, slide E2-3.

20 TPI: ‘The TPI Index: An Informed View of the Stateof the Global Commercial Outsourcing Market Q22010’, slide 12.

30 Tornbohm, Cathy, ‘Magic Quadrant forComprehensive Finance and Accounting BPO’,Gartner, 17 December 2009, p. 3.


50 Tornbohm, Cathy, ‘BPO: What Does Good LookLike in 2010?’, Gartner Outsourcing & IT ServicesSummit in London, June 2009.

60 Everest Global, Inc.: ‘Global Sourcing, Market VistaQ2 2010’, 2010, slide II-1.

70 Everest Global, Inc.: ‘Global Sourcing, Market VistaQ2 2010’, 2010, slide II-5.



10 ‘Q&A Interview with Tom Bangeman’, SharedServices & Outsourcing Network, July 2010, p. 3.

REFERENCES

‘The focus on both sides is to move to a moreend-to-end process-oriented view beneficialfor both parties instead of just haggling overthe production of activities in batches’


CHOOSING A PATH

SELECTING THE RIGHT SOURCINGMODELWhen considering sourcing it is important to look at all the possibilities. Here, thedifferent models, motivation and risks are analysed.

Captive sourcing vs outsourcingA decision to undertake transformational change to back-office operations often culminates in a decision betweencaptive shared services (CSS) and business processoutsourcing (BPO). Shared services refer to the groupingof skills into a separate unit and the provision of acommon service by the one unit.

In the CSS model, that grouping is done in-house –while BPO is the delegation of the provision of businessprocesses to a third party. Which operating model ischosen depends on the maturity, ambition and culture ofan organisation. Figure 1 (below) graphs the variance inthe key decision levers in the two operating models.

Typical drivers for CSS include:• the desire to realise all initial cost savings; • concern of loss of process knowledge to a third party;• fear that BPO may restrict flexibility and cause

inefficiency;• the objective to develop own shared services offering in

the market; and• the opportunity to improve internal operations before

looking to an outsourcing partner.

Typical drivers for BPO include:• the decision that back-office activities are non-core and

would be better handled by a third party specialist;

• the fact that the business is under intense costpressure and needs to deliver immediate results;

• the view that the amount of spend and/or changerequired would be very hard to achieve internallyand needs to be handled in partnership with anexpert; and

• a lack of specialist legal knowledge to run anoffshore location.

Sourcing modelsSelecting the right sourcing model means finding theright combination of ownership, location andmanagement. Figure 2 shows how these decisiondrivers interact to create different sourcing models.

Ownership axisSuccessful companies are using multiple or selectivesourcing not just to save money but as a best practicewhich increases organisational flexibility anddecreases time to market. They are taking a closerlook at their processes and sub-processes to decidewhich sourcing option is best on a case by case basis.

Disciplined multi-sourcing offers a new frameworkfor greater control over sourcing decisions andensures that customer-supplier relationships delivervalue and support business strategies.

Diagram 2 Operating model options and key levers for realising benefits ofFigure 1

Operating model options and key levers for realising benefits of shared services

Labour arbitrageBoth captive sharedservices and outsourcingcan benefit from cheaperlabour but outsourcingtends to be morelocation flexible.

High

Low

Med

Captive shared services Outsourcing

Leve

rage

Process efficiencyBoth solutions use bestpractice and continuousimprovement to refinefunctions but this is morecritical for outsourcingsuccess.

Economies of scaleBoth solutions employeconomies of scale butoutsourcing often leversthis throughconsolidated centres.

Soft benefitsOutsourcing of processesdoes transfer a largeelement of control to theoutsourcer.

Labour arbitrage and economies ofscale allow outsourcing to operate ata lower cost base, however the clientmust transfer a significant element ofprocess control over to the supplier.

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back from offshore activities. The key lies in carefulplanning, implementation and management of thedelivery.

Many organisations are combining the models intohybrids for flexibility in assuring the right level of riskand cost savings while maximizing benefits such asimproved leveraging of capabilities and expertise.Figure 3 (opposite) illustrates how the lines betweenthe models are now blurring, as organisations selectand design hybrids to best fit their own business realityand needs.

A word about riskThe perceived risks of outsourcing are related to thecommercial relationship between the insourcer and theoutsourcer. The benefits of the outsourcing deal mightbe outweighed by the costs and perceived risksassociated with outsourcing in the following areas:• operating model;• knowledge transfer to third party;• vendor selection;• negotiating price;• ensuring quality and continuity;• organisation change management;• service level management;• vendor governance;• geographical and political risk; and• data privacy.

Location axisThere are three types of locations in sourcing: onshore,nearshore, and offshore: • onshore offers best cultural and language alignment

and access to experienced staff; yet it is not likely tobe the lowest cost option;

• nearshore means cultural similarity but at a lowercost and provides access to highly educated staff.Yet, the staff may not be as experienced and thelanguage skills might be limited; and

• offshore is the lowest cost option that providesaccess to highly educated staff. There might bestronger cultural differences, greater potential for lossof interaction and liaison, and access to languageskills is limited.

The terms ‘bestshoring’ or ‘rightshoring’ arecommonly used to describe the location mix choice inwhich processes are where the organisation can beassured maximum leverage of the shared servicesmodel for a particular business function.

Management axisIt takes a lot of management effort to realise theexpected benefits of shared services and offshoring.Poorly managed cost-saving strategies can end upcosting far more than the original savings planned.This has resulted in a number of companies pulling

‘Successful companies are using multiple or selectivesourcing not just to save money but as a bestpractice which increases organisational flexibilityand decreases time to market’

Figure 2

The split in scope of process functions between shared services and the retained organisation meansa need for different competencies and skill sets in the two organisations.

Spin off(eg new company)

Horizontally outsourced(eg BPO vendor)

Vertically outsourced(eg managedservice provider)

In-house BPO vendor

OWNERSHIP

LOC

ATIO

N

MANAGEM

ENT

Near shoring

Shared support organisation(eg facility power house)

Captive offshored(eg offshored SSC)

Optimised house solution(eg in-house SSC)

Tight management

OutsourcedIn-house

Selective sourcing or multiplesourcing is a combination ofvarious sourcing options

Onshore

Offshore

Light management


Though risk mitigation has been gradually losingimportance as a factor key to sourcing decisions,organisations still tend to choose their sourcingstrategy based on risk mitigation. By selecting anSSC, organisations want to ensure proximity to thebusiness, avoiding dependency on external suppliersand loss of knowledge.

‘The perceived risks of outsourcing are related tothe commercial relationship between theinsourcer and the outsourcer’

Figure 3

New models blending onshore, offshore and ownership decisions

Global

Local

In-house provision

Shift in corporateambition

OutsourceOwnership

Loca

tion

Hybrid model

• Own captive consolidated centrewithin ‘sphere of influence’

• Outsource partner

Addedvalue/scope

Global businessalignment

Regional consolidation

• Consolidate as much activity aspossible in one chosen location

• Build critical mass• Professionalisation achievable

In country consolidation

• Consolidated operations country bycountry

• Standardisation achievable• Suitable for operations with local scale

Global external delivery farshore

• Transactional activity consolidated toa single delivery centre deliveredexternally from a farshore location

Regional consolidation deliveredexternally from nearshore

• Transactional activity consolidated to asingle delivery centre deliveredexternally from a nearshore location

In country consolidation and externaldelivery

• Consolidated operations country bycountry

• Standardisation achievable• Suitable for operations with local scale

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The integrated distributed model is focused on usingonsite, nearshore, offshore, and client teams, withcommon tools and methodologies to maximiseleverage in meeting clients’ process, language andservice needs.

CASE 1Hub and spokes structure for optimal localisation offront- and back-office support

Company: A global manufacturing business.

Business issue:The company’s transactions were executed within eachcountry of operations by localised accountingfunctions. There were no uniform procedures and nocentralised overview of transaction processing.

Solution:Transaction processing moved to two centralised front-office locations plus back-office support. Krakow,Poland front office provides problem resolution,collection and other functions that require ongoingcontact with client and third parties. Guatemala Cityfront office handles voice services for North America,providing dedicated collection activities. GuangzhouCentre, China delivers transactional tasks. Krakow is thecommand centre for all three locations, drivingadditional controls, process improvement, andoperational conference calls with the client.

Benefits:• Headcount down 10% after first year and by an

additional 5% after second year.• Around 50% cut in cost for the services transferred

from US and Western Europe.• Enhanced quality (eg error rates reduced compared

with pre-outsourcing).• Improved control environment, as reflected in cleaner

internal and external audits.• Centrally orchestrated and co-ordinated continuous

improvement and KPI/SLA compliance assurance andquality control.

CASE 2Centralised F&A function for standardised processes

Company:The Danfoss Group is an international businessspecialising in the research, development andproduction of mechanical and electronic componentsand solutions.

Business issue:Danfoss had local accounting departments in eachEuropean country (plus South Africa), which operatedon fairly standard SAP solutions and generatedvariations in local processes.

Solution:Selected European F&A processes were moved into asingle location – Krakow – to assure standardisation,automation and lower costs.

Benefits:• Significant productivity savings. • Reduced number of FTEs performing accounting

duties. • World-class quality of accounting processes.• High level of transparency.• Standard solution to be applied for the new US and

APAC scope.

CASE STUDIES: WHAT SHORE IS BEST?

‘The integrated distributed model is focusedon using onsite, nearshore, offshore, andclient teams’

Collections centre, Guatemala

Front office, Poland

Back office, China

Client


THE FINAL SELECTION

MAKING THE DECISIONOnce the decision on sourcing has been taken, crucial aspects to consider includemanaging the transition, arranging security and disaster planning. Some advice isoffered below.

In order to make the right sourcing decision, theorganisation must be clear about the objectives of itssourcing strategy. Whatever operating model is selected,its implementation will not be easy. Thus, it is imperativeto involve the right stakeholders. To have the strongsupport of the executive board, an excellent business casemust be built, one that goes into details, showing a goodrate of return and payback, and demonstratingmeticulous planning. To clearly know and understandwhat the change will mean for the organisation, changemanagement activities must be effectively measured andtracked.

Strong governance is key and the decision process theorganisation follows must be rigorous, starting with arequest for information (RFI) and then a request forproposal (RFP) – also possibly with the assistance of anadvisor firm, especially if the organisation is making thistype of decision for the first time and/or would like toaccelerate the process. The more thorough the questionsposed in the RFI and the RFP and the more care is taken

to ensure the provided responses are incorporated in thecontract, the better the contract and the resultingsourcing relationship.

What you can and cannot outsourceThe pooling of skills into silos for greater standardisation,automation and control makes sense. Yet, though thebenefits derived from such a practice have began to shiftfrom labour arbitrage and cost cutting to top-lineaugmentation, what can be outsourced has not changedall that much.

The basic rule of thumb is – if tasks can bedocumented to an 80/20 level or higher, if they can berepetitive, and if they can be learned in no more than sixweeks given a certain skill level then they can beoutsourced. Thus, this model of delivery can be appliedto transactional activities, not to value-added activities,decision taking, strategy or policy.

It is important to note that in most organisations,such transactional activities account for 80% of the

Diagram 5 Typical division of business processes into those that can be pooled into shared services andthose that cannot.

Figure 4

Typical division (%) of business processes into those that can be pooled into shared services and those that cannot.

Accountspayable

Accountsreceivable

Cash andbanking

Fixedassets

Financialaccounting

Managementreporting

• Receive invoice• Scan invoice• Check invoice• Automatic purchase

order based invoicematching

• Resolve invoice withoutpurchase orders withcustomer

• Raise standard accruals• Maintain vendor

master data• Make payments• Resolve vendor queries

• Receive payments• Match customer

payments with invoices• Identify disputes• Identify collection

‘problem accounts’• Forward non-paying

problem accounts toeither a collectionagency or a lawyer

• Set credit policy• Resolve customer

queries

Non-shared activities

Shared activities

• Manage bank accounts• Reconcile bank

statement

• Communication ofexpectations regardingcash movements

• Register assets• Depreciate assets

according todepreciation policies

• Make physicalinventories

• Perform physicaltagging

• Book standard accruals• Close• Reconcile general

ledger with sub-ledgers• Prepare statutory

accounts

• Post non-standardaccruals and write-offs

• Perform businessreviews

• Liaise with taxauthorities

• Produce standardreports

100%

20%20%

20% 20%

30%30%

30% 30%

50%

50%

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headcount. Figure 4 provides a clear overview of thetypical scope of F&A shared services.

In order to qualify what would be best to keep in-house and what would be best to outsource, theorganisation should follow a structured decisionmatrix. A typical decision matrix will look at theinterplay of:• complexity – the more complex a process, the

more likely it is to be delivered in centres ofexpertise specialised in the processing of a singlefunction;

• the relationship with the core business – the higherthe strategic impact of the process, the more likelythey should be retained in-house;

• critical mass – the higher the volumes and thepotential for standardisation, the easier to achieveeconomies of scale; and

• the local impact – the higher the local impact(regulations, language, flexibility of support), themore likely to keep activity in the country ratherthan in a central hub.

Additionally the organisation can conduct abenchmarking exercise to determine maturity andstability of each process and sub-process. Then, processmaturity can act as the decision lever for what processor sub-process to outsource and what is better to

remain in-house, as in the case of Coca-Cola Enterprises(see the case study, below).

Best locationTo select the right sourcing location, organisations needto step beyond short-term location trends and make adecision based on robust evaluation criteria tailored tothe specific requirements of the organisation and of themarket in which it operates. The choice of sourcinglocation cannot be solely based on cost but must factorin environmental, political and operationalconsiderations. See Figure 5 (opposite) for the threefactors relevant to the localisation decision.

Pricing methodologiesThe four most common pricing mechanisms are:

Fixed priceThe model provides for a contractually defined profile ofcharges for the term of the contract, which incorporatesboth the variable and fixed costs of service delivery.Typically, these fixed monthly charges decrease over theterm of the contract due to committed productivity andefficiency improvements. Fixed pricing is based on theprinciple that baseline business volumes, and thereforethe work effort and cost required to process them, remainconstant throughout the contract term.

Coca-Cola Enterprises achieves major cost savings throughfinance optimisation project

Company:Coca-Cola Enterprises (CCE) is the global marketer, producer anddistributor of Coca-Cola products.

Business issue:CCE was not realising the full benefits of a centralised sharedservices centre. It set the goal of saving $20m a year intransaction work costs through a finance optimisation project.

Solution:To identify what processes were mature enough for outsourcing,CCE went through a benchmarking exercise with the HackettGroup to see how the organisation’s effectiveness and efficiencystacked up against the competition. The Hackett Group assessedthe maturity and stability of each sub-process within CCE’s order-to-cash, procure-to-pay, and record-to-report functions. While thecompany was doing pretty well on the scale of effectiveness,approaching world class, it had a way to go in terms of efficiency.The study identified that to become more efficient, CCE wouldneed to conduct as much of its transaction processing as possiblein a low cost country, either with a third party outsourcer or acaptive shared services centre.

Since CCE was not active in a low-cost country, the quickest

road to achieve efficiencies with the least risk was to outsource asmuch of the transaction work as possible, and at the same timedo more centralisation of the higher level transaction processingin its established shared services centre in Tampa, FL.

CCE and Capgemini implemented a solution throughout CCE’sglobal business to create an efficient process in a cost-effectiveenvironment for order-to-cash services, purchase-to-payaccounting and record-to-report activities. Capgemini’s solution isdelivered from three offshore locations:• collections, deductions management and customer service are

provided from Guatemala City, Guatemala;• order-to-cash, record-to-report and purchase-to-pay processing

are provided from Krakow, Poland; and• back office functions in master data, cash application, credit and

various other activities are from Chennai, India.

Benefits:• Accelerate the transformation and help achieve near world-class

performance by standardising and streamlining operations.• Deploy a global unified solution across all CCE business units to

support the business that includes standardisation and processimprovement while maintaining high standards of control andcompliance to achieve a minimum savings target of 25%.

• Mitigate risks while transitioning the work and implementingnew tools, systems and technologies.

CASE STUDY: COCA-COLA ENTERPRISES

‘In order to qualify what would be best tokeep in-house and what would be best tooutsource, the organisation should follow astructured decision matrix’


FTE based pricingUnder this model, monthly charges are calculated byapplying a rate card to the actual number of FTEsused to deliver services.

Fixed price with ARC/RRC mechanismThis is a variant on the fixed price model thataddresses the issue of changing business volumesusing additional resource charges (ARC) and reducedresource credits (RRC) that reflect the variable cost ofprocessing one more or one less transaction. They areused to automatically adjust fixed price contracts toreflect moderate volume fluctuations throughout thecontract term.

Transaction pricingUnder this model full transaction pricing units aredefined in the contract for different volume scenarios.These transactional prices include both the variable

costs of delivery and an allocation of fixed costs.Whereas the ARC/RRC mechanism described above isused to periodically adjust a fixed charge within adefined volume band, full transactional pricing iscalculated bottom up each month by multiplying thevolume of transactions processed by the applicabletransaction price for that volume band.

Depending on an organisation’s attitude toward riskand reward, the pricing model can provide for again-share mechanism to incentivise both parties tocollaborate to further reduce the costs of service ordeliver other business benefits.

Transition As soon as the most beneficial sourcing model hasbeen selected, an implementation scenario needs tobe defined. Organisations should assess internalservices, decide what they want to achieve, and

‘As soon as the most beneficial sourcingmodel has been selected, an implementationscenario needs to be defined’

Figure 5

A closer look at the interplay of the three factors underlying the sourcing localisation decision

Op

erat

ion

al

fact

ors

Co

st f

acto

rsEn

viro

nm

enta

l an

d

po

litic

al f

acto

rs

Economic and currency stability

Pro-business regime

Political stability and openness

Natural disaster/security risks

Proximity to large conurbations

Government and industry regulation

Labour costs

Operating costs

Labour force trends

Employment regulations

Stable taxation rate

Language capability

Technical skills

IT and telecoms reliability and speed

Transport links

Greenfield/brownfield

Cultural fit with organisation

Proximity to other shared services

Government grants and other incentives

Expected cost inflation

Proximity and access to customers,suppliers and head office

Geographic logic

Business logic

Financial logic

Time constraints

Development and retention capabilities

HR

Local stability

Labour force availability

Infrastructure and accessibility

Define project and transition requirements

Business engagement requirements

Operational context

Current operating costs

Space and infrastructure

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determine how to get there. There are fourimplementation possibilities that might beconsidered:• lift – the process is handed over in the current condition

to the BPO or SSC; • shift and lift – the process is first transformed before it is

handed over; • lift and shift – the process is first handed over

whereupon transformation commences; and• step by step – programmed transformation.

In the transformational approach, while processes arelifted they are also studied and matched against bestpractice and adjusted to minimise variance. Thecombining of the number of actions into one timeframemeans a much quicker leap to improvements – see Figure6 (above). Also, the organisation and the vendor canagree that during the transition a defined level ofstandardisation can be implemented right away duringthe transition. As this is done, the transition team canreview and suggest an implementation roadmap forfurther improvements and recommend tools andmethodology that could yield further improvements andvalue not only during the transition but also afterwards.

Especially when cost-savings are a primary driver, thereis understandable pressure to get an offshoring movecompleted as quickly as possible. However, processmapping and documentation cannot capture every detailof a process and the gaps should be filled by sending theright number of staff for the right amount of time toobserve the processes in their native location. In addition,subject matter experts from the organisation should planon spending a substantial amount of time in the offshorelocation to ensure that training is done accurately, and tobe available for escalation during ramp-up andproduction cut-over.11

Security Assuring security and stability of processes is essential forF&A shared services. Confidentiality and risk to

intellectual property are often cited as key reasons whyorganisations choose not to outsource to an externalprovider. BPO providers must ensure sufficient securitymeasures to limit the risk of intellectual property theft orbreaches of confidentiality.

Security procedures should address data security,physical security, and intellectual property protection.Regardless of the exact procedure implemented toassure security, it is important that international securitystandards are observed and that regular audits (bothinternal and external by the relevant institutions) arecarried out. The industry benchmark is ISO/IEC27001:2005. It specifies the requirements forestablishing, implementing, operating, monitoring,reviewing, maintaining and improving a documentinformation security management system within thecontext of the organisation’s overall business risks. Itspecifies requirements for the implementation ofsecurity controls customised to the needs of individualorganisations or parts thereof. ISO/IEC 27001:2005 isdesigned to ensure the selection of adequate andproportionate security controls that protect informationassets and give confidence to interested parties.

Additionally, an organisation that outsources processesto a third party must be able to conduct regular securityaudits of the processes on the third party’s premises.

Disaster recovery and back-up plansMoving work and resources to a new location meanshaving to prepare for new dangers. Just looking atrecent history, we’ve seen what natural calamities cando. For example, the devastating floods in theoffshoring hot spot of the Philippines damagedinfrastructure and placed serious obstacles in the day-to-day operations of all businesses. Earlier in the year, theearthquake in Chile also reverberated not only in localoperations but also in the parent organisations of CSSand BPO centres.

Organisations also need to plan ahead for thepossibility of an unplanned disruption in operations anddemand of the SSC or the BPO to have acomprehensive business continuity and disaster recoveryplan. Such procedures should also be aligned withindustry standards, such as the Business ContinuityInstitute (BCI) Good Practice Guidelines and ISO 27002Code of Practice for Information Security Management.

11 Liddell, Jamie, ‘Top Ten Mistakes Made When Offshoring’, SharedServices & Outsourcing Network, September 2010 www.ssonetwork.com

REFERENCES

Figure 6

Shifting from traditional to transformational methodology for more rapid transitioning andproductivity gains

Traditional approach

Lowest risk but delays benefits and productivity gains

As-isprocessesfrom clientlocations

Processes tonewcentre(s)

Processesfrom manyentities tofewercentre(s)

Transitionedservices todrive upproductivity

Lift Shift Consolidate Improve

Transformational approach

Increased transition complexity but delivers greatestproductivity in shorter period

As-isprocessesfrom clientlocations

Processes tonewprocessingmodeland/orsystem

Newprocessesinto fewercentre(s)

Transitionedservicesdrive upproductivity

Lift Transformation Shift Improve


CONTRACTS

CONTRACTUAL ISSUES ANDGOVERNANCE MODELSThis section provides guidance on setting out a clear and unambiguous contract whensetting up a good sourcing relationship.

A good sourcing relationship is one built on atransparent, non-ambiguous and clearly writtencontract – a contract negotiated with the backing andfull commitment of senior leadership including thecommitment of the necessary finance management.12

Even with continuous high-level leadership support,the amount of effort that goes into contractnegotiation is often underestimated and the stickingpoints may not be what you would expect them tobe.13

Yet, an organisation needs to be as diligent aspossible even at the expense of a delay inimplementation. No matter how close the relationshipbetween customer and supplier, or how confident anorganisation might be in the integrity and stability ofa proposed new location, the due diligence must beseen as an indispensable part of any offshoringprocess.14

The customer and supplier organisations need towork together to finalise the plan incorporating alldeliverables, dependencies and tasks and theirallocation to the parties, including governancestructure, appointment and training of delivery team,confirmation of all policies and regulatory

requirements for the customer, the development andsign off of KPIs, as well as a formal mechanism forissue resolution and escalation. The key questions tobe answered during the shaping of a contract areshown below left.15

The move to the FAO shared services framework willimpact more than just the processes. Internalcustomers of finance will probably have to be muchmore rigorous in how they interact with the externalcustomer. Third party suppliers may find themselveshaving to comply with new requirements. Externalcustomers may find that an outsourcer is the first lineof cash collection as well as account maintenance. Inaddition, there will be a need for activities not neededearlier, such as contract management.

Thus it is important that the outsourcingarrangement be clear on how processes are beingstandardised and centralised and what theorganisational impact of any deviations will be16, alsoso that internal stakeholders are well aware of and canprepare for the impending impact of the change.

Exit management The cause and circumstances surrounding contracttermination, beyond simple contract expiration, canvary significantly based upon specific circumstances,from a change in executive leadership or businessstrategy (as a result of a divestiture or introduction ofa new business model), to problems withperformance, desire to renegotiate, all the way toprovider non-performance or loss of credibility.Regardless of cause or category of termination, theoutsourcing contract should provide an explicit andclear exit strategy, with an accurate transition plancovering the handover process.

An exit management clause in the contract shouldinclude, but not be limited to, all activities and costsrelated to ensuring the continuity of services,compliance with applicable guidelines, regulations

‘The customer and supplier organisationsneed to work together to finalise the planincorporating all deliverables,dependencies and tasks and theirallocation to the parties’

• Who will do what as far as processes areconcerned?

• What will the service level from the supplier be?• What will the customer have to do?• Who will do the reporting?• What happens if the customer wants to terminate

the agreement?• What happens if anything changes during the

period of the contract?• What happens if the service falls below the set

KPIs?• What happens if the service falls significantly

below defined KPIs?• What if there is significant and persistent failure

against defined KPIs?• What happens if the supplier causes loss to the

customer?• What happens if the contract is terminated?• What happens with regard to transfer of

undertaking of protection of employment rights?• What happens if parties cannot agree?• What rights does the supplier have to provide

other services?• What is the overall liability cap for the supplier?

KEY CONTRACT QUESTIONS

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and laws, and the transition plan and handoverprocess itself. A significant focus will be on knowledgetransfer and most of the time allocated in the hand-over will be to knowledge transfer.

Getting the governance model rightRelationship management is at the core of everysuccessful outsourcing relationship. The governancestructure should ideally be simple, with a single pointof accountability from both the organisations asfollows:• interfaces between the two organisations should

operate at various management levels. These needto be carefully defined so that personnel from bothorganisations have a clear view as to who isresponsible for what and at what time;

• while formal structures are necessary, thedevelopment of personal relationships is key. As staffat different levels have contact with one another,mutual trust and understanding is built;

• over 95% of issues should be resolved withoutrecourse to the next management level or formalescalation procedures;

• the joint management team should be an open andhonest partnership, with a positive culture of how tomove forward, rather than apportionment of blame;and

• The governance structure needs to evolve throughtime to reflect the transition from a major changeprogramme to ongoing steady state serviceprovision.

Figure 717 (below left) shows a suggested model forgovernance of an outsourcing relationship, a structurethat establishes the best platform for governance.

Offshoring is complicated enough without theadded confusion of people not knowing specificallywhat they’re going to be doing, where and when.Clear definition of roles and responsibilities should bethorough and top down. Key delivery team membersshould be engaged early in the project to ensure thatservice migration smoothly transfers into the deliveryphase. The use of the future delivery team in thetransition ensures that the knowledge captured andrelationships built during transition can continue to beleveraged during the commencement of servicedelivery and thereafter.

The outsourcer’s senior team members shouldparticipate in governance committees during servicemigration and then in delivery. This will ensurecontinuity of knowledge and ownership of any issuesthat arise.

‘The governance structure should ideally besimple, with a single point of accountabilityfrom both the organisations’

12 Scott, Peter, ‘Cutting costs in the finance function’,From Outsourcing to Offshoring, October 2004,ICAEW, p. 8.


14 Liddell, Jamie, ‘Top Ten Mistakes Made WhenOffshoring’, Shared Services & Outsourcing Network,September 2010 www.ssonetwork.com



17 Tornbohm, Cathy, ‘BPO: What Does Good Look Like in 2010?’, Gartner Outsourcing & IT ServicesSummit in London, June 2009.

REFERENCESFigure 7

Mirroring function governance model for sourcing

Buying organisation BPO provider

Senior executivesCEO, CFO, COO

BPO executive

Sourcingspecialist

Global managerprocess ‘A’

Global managerprocess ‘A’

Global managerprocess ‘B’

Global managerprocess ‘B’

ITmanager

Globalbusinessprocessliaisonmanager

Contractmanager

ITmanager

Globalprocessdeliverymanager

Commercial

Delivery

Technology

Relationshipmanager

Accountmanager


CUSTOMER SERVICE

SERVICE LEVEL AGREEMENTS ANDQUALITY ASSURANCEMaintaining standards of service is highly important. The use of KPIs, benchmarking andservice level agreements are fundamental to this.

Service level agreements (SLAs) are the centralinstrument to agree for the provision of servicesbetween the customer and supplier of sharedservices. Under it the customer commits to deliveringthe inputs necessary for the supplier to render theservice and to supporting the measurement andevaluation of performance and continuousimprovement efforts. On the other side, the suppliercommits to the provision of the services, to thecoordination of the measurement and evaluation ofperformance, continuous improvement, and toenhancing the services portfolio. To this end, the SLAmust define:• the scope of service;• the contact person;• KPIs and target values;• a measurement process;• the change request process;• a process for escalation; and• pricing and allocation.

Figure 8 (below) suggests stages for building an SLA.The SLA should be a flexible mechanism that allowsfor adjustments, according to changes in thecustomer’s business requirements. The contractshould provide for regular review of the SLAs toprepare for changes and also for agreeing to all theimplications that such changes could cause –together with the proper KPIs that will be used tomonitor the SLA.

Procedures need to be defined in the SLA on theway the metrics are calculated ensuring those metricscan be compared across time periods, using the KPIsas benchmarks of quality targets defined in the SLA.It is also important KPIs reflect activities over whichthe supplier has control, rather than setting globalKPIs where the customer also has a major influence.

All KPIs benchmark efficiency, the most basic ofmeasures focused on time and cost. KPIs can alsomeasure effectiveness – accuracy and timeliness – ofthe delivered services.

Figure 8

A sample staged approach to building an SLA framework

• Assess work done todate (eg review SLAalready in place ifappropriate, assess KPIwork done, SLAs forlegal etc.)

• Identify keystakeholders

• Define SLA scope,purpose objective,critical success factors

• Create project charter,detailed plan, risk andissues

• Build draft SLA template• Review early

requirements eg transferpricing, taxconsiderations, legal

• Design SLA Framework – Define key

contractual terms(duration ofagreement,commencementetc)

• Develop principles forSLA design

– Roles 7responsibility matrix

– governancestructure

– commercialframework (to covercross chargemechanism,penalties etc)

– option for charging

• Focused session todefine performancelevels either bynegotiation and/or byservice characteristic.(Integrate with KPIwork)

• Develop additional toolsand reporting tomeasure SLA

• Identify countrydependencies and timelines of informationprovision

• Developcommunicationframework(channels/methods)

• Develop demandmanagement process

• Define escalationmechanisms

• Agree additionalactivities with end usersand commercial impact

• Customer workshops tovalidate expectedperformance levels withbusiness users

• Agree SLA framework(including - ownership,role and responsibilities,governance, escalationprocess, commercialarrangements)

• Agree detailed servicelevels and dependencies

• SLA and framework signoff

• Educate and trainshared services teammembers in the SLAmanagement process

• Implementation of toolsand reporting tomeasure the SLAs (ifrequired)

• Develop guidance andFAQs on SLA

• Measure post-implementation success(to be carried out byShared Services andbusiness owner on anongoing basis)

• Ensure additionalreports produced areverifiable and are easilypresented

• Assessment of potentialfuture challenges

• Identify continuousimprovement feedbackmechanism

• Handover to sharedservices SLA owner

• SLA post-go-liveassessment futurechallenges identified

• SLA go-live• SLA developed• Escalation/demand

management defined

• SLA framework design -to include roles andresponsibility matrix,governance structure

• Scope DefinitionDocument

• SLA development androllout plan

• Stakeholderengagement plan

• SLA template• Issue and risk log

• SLA and framework signoff

2 weeks

Defining scopeand plan

Design framework Develop SLAValidate andreview

Implement andembed

3 weeks 4 weeks 4 weeks 2 weeks 1 week

Act

ivit

ies

Del

iver

able

s

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KPIs can relate to review process controls, ie policiesand procedures established and implemented to helpensure effective response to risk. In addition, somesuppliers offer to measure the value in business benefitterms derived from the provided service (see the boxbelow ‘Diamond KPIs’).

Service quality planBeyond the SLA, the service quality plan (SQP) is one ofthe key documents that describes how the qualitymanagement system is implemented for a specificcustomer across multiple centres. The SQP features adescription of the delivery process, standards, proceduresand tools that are appropriate for the delivery.

It also includes quality procedures, quality review plans,technical review plans and procedures to checkdeliverables. Moreover, it defines the financialmanagement process, change management process,client satisfaction implementation plan, the monthlydelivery review process as well as the problem/issuemanagement process.

‘Quality management and continuousimprovement underpin the path to servicedelivery excellence, efficiency and processtransformation’

Key performance indicators (KPIs) form the backbone of performancemeasurement under service level agreements (SLAs). Diamond KPIsfocus more on the service efficiency (productivity) and show how theycan help the customer achieve world-class operational performance

Effectiveness KPIs • Credit: % credit applications processed accurately • Master Data: % changes processed accurately • Collection: % overdue receivables • Cash: % lines matched accurately • Query: % queries over 10 days old • Reporting: % reports issued on time

Control KPIs• Master Data: % detected segregation of duties exceptions • Pre-process: % prevented duplications / incorrect scanning of

documents • Capture: % prevented incorrect / incomplete transfers from

procurement system • Authorize: % prevented duplicated / fraudulent invoices processed • Query: % detected unauthorized requests • Payment: % detected segregation of duties exceptions

Value KPIs • Credit: % bad-debt write-off • Master Data: % compliance • Collection: % Days Sales Outstanding (DSO) • Cash: % cash unallocated • Query: % change current to previous month queries to invoices ratio • Reporting: % of ad-hoc reports

DIAMOND KPIs

Quality management system (QMS)Quality management and continuous improvementunderpin the path to service delivery excellence,efficiency and process transformation. Qualityassurance processes are used to identify, evaluate andmonitor quality and performance so that clients areprovided with the highest quality deliverables andwork products.

The QMS should be implemented to assist theorganisation in identifying and monitoring quality ofthe provided services. QMS should be a thoroughtop-down mesh of well-documented and monitoredpolicies and procedures, abided by all under clearand consistent lines of accountability. The qualityprocedures should be documented, controlled andheld in a central repository as should process mapsand desktop procedures.

QMS should be structured as a coherentmanagement system using recognised qualitystandards, such as:• quality planning – ISO 9001:2008;• quality governance – ISO 9001:2008;• quality assurance – Six Sigma/Lean, OTACE; and• quality improvement – Six Sigma/Lean.

For FAO it is recommended that QMS be compliantwith ISO 9001:2000/2008 as that certification has ahigh degree of focus on process documentationwhich is so important in accounting and finance.

Secondly, the quality management principlesdefined in ISO 9000:2008 (Quality ManagementSystems, Fundamentals and Vocabulary) and in ISO9004:2000 (Quality Management Systems, Guidelinesfor Performance Improvements) emphasise the rolethat customers play in an organisation’s QMS.Specifically, customer requirements guide howservices are provided and customer satisfactionevaluates service output.

Compliance There are three aspects to compliance in delivery ofservices:• ensuring compliance of delivery centres with local

laws and regulations of the country in which thecentres are located. Here the key control areas are:– human resources, corporate, financial and

taxation requirements, data protection andprivacy;

– telecommunication, software and othercontrolled components; and

– occupational health and safety.• ensuring compliance with local laws and regulations

of the country to which the services are beingdelivered remotely. Key control areas here are theorganisation’s policy and regulations, licensing andcustomer protection laws; and


• ensuring compliance with any regulations andstandards that the customer would like his processesto align with, including Sarbanes Oxley requirementsand SAS 70. Though the audit of the supplier toassure compliance must be conducted by an externalbody, the customer can expect the supplier to haveauditors and experts that know how to alignprocesses and internal procedures to ensure successfulaudit results.

External and internal audit The supplier should support the organisation with allstatutory audits. During the audit period the supplierand the organisation must assure proper cooperation sothat the right information and documentation is sharedwith the auditors. Interestingly, centralizing accountingfunctions offshore, for example in Poland or India,means that local branches of big audit firms can visitthere to conduct external audits. This can significantlyreduce the overall audit costs as the auditors do nothave to visit many sites.

BenchmarkingIn addition, service quality and how services aredelivered can be benchmarked – the benchmarkingexercise is often in the interests of both the customerand the supplier. The external benchmarking entity canprovide an unbiased point of reference that constitutesan impetus for high performance and for a structuredway of identifying underperformance and, if need be,investigating its causes.

Some suppliers, in an attempt to pave the way forgreater streamlining of process management andreporting, and to ensure greater flow of information onprocess improvement and best practices, are alsoimplementing other mechanisms to assure oversight,with the ‘command centre’ model as one example ofsuch a practice (see the box ‘command centreconcept’, right).

‘During the audit period the supplier and theorganisation must assure proper cooperationso that the right information anddocumentation is shared with the auditors’

The command centre concept is designed to support the supplier’smanagement in delivering services to the customer.

It is not involved in delivering services or in operationalcommunications, rather it creates a platform for best practice andmethodology sharing between processes and to building deliveryexcellence and business insight within the BPO. This is based on thesupplier’s accumulated experience and knowledge in serviceprovision.

The features include:• service reporting – to provide organisation reporting as well as

customer-specific SLAs, other operational metrics including trendanalysis, and to serve as a central repository of contractdocumentation, reports and data;

• quality assurance – to coordinate continuous improvementinitiatives within engagement; to motivate engagement staff togenerate and implement improvement ideas; to prepare andanalyse satisfaction surveys; and to perform quality check andinternal control testing. This function also coordinates internalaudits and cooperates with the quality management system;

• business insight – to provide data analysis expertise and tools(statistical analysis knowledge, data extraction, gathering andstoring, skills in relevant technology); to conduct internalbenchmarking and to analyse results against industry trends tomake sure they are reflected in service reporting and SLAs; and

• communication – to develop appropriate communicationchannels/tools as per agreed frequency and content between thecustomer and the supplier.

COMMAND CENTRE CONCEPT

Engagement director

Engagement manager

Businessexcellence

Deliveryexcellence

O2C Tower

R2RTower

S2PTower

Command centre

O2C Teams

O2C: Order to cash R2R: Record to report S2P: Source to pay

R2R Teams S2P Teams

Service reporting

Communication

Quality assurance

Business insight

Client’s global process owners

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HUMAN RESOURCES

PEOPLE MANAGEMENT Such a massive change in organisational structure will require change in themindset of employees. Effective people management will be required to ensure asmooth transition and continued high standards. Here we discuss some key issues.

Clearly, though a given process is outsourced orpooled in a central location, some oversight of theprocess must be retained, depending on the scope andlevel of processes outsourced. See Figure 9, below, fora schematic overview of how process functions shouldbe split between shared services and the retainedorganisation.

The functional roles of a retained organisation willtypically include:• strategy;• contract management;• process improvement;• retained accounting;• F&A policy management;• vendor relations; and• administration.

Retained personnelThe strategic decision to pool F&A functions togetherand source either in-house or from a third party hasserious repercussions for the organisation’s workforce.These repercussions are not only reflected inheadcount, but if due care is not exercised, can alsoreverberate in overall morale, productivity andattrition.

It is critical that, once the ‘secret is out’,management moves to comprehensively inform itsstaff of the impending change, what the reasons for itare and the resulting business benefits, and whatprovisions have been made for them. The organisation,as an employer, should provide new training and workto redefine roles of the employees that remain as key

bridges between the organisation and the sharedservices. The retained staff members must be open tochanging their mindset, moving from the supplier’sseat to the customer’s seat, becoming a true businesspartner for shared services, whether captive oroutsourced.

This openness to changes in mindset can onlyhappen in an environment that fosters trust andopenness. It is only in that setting that the retainedstaff will effectively add value. To this end, it is best tohave a structured and comprehensive careerdevelopment programme that provides for professionaldevelopment that accommodates changes in roles asthe organisation shifts to centralizing some businessfunctions, a path which clearly defines what the addedvalue is and how the staff’s efforts will be assessed andmeasured.

Given that the retained staff will have to work closelywith the shared services staff, and usually also exerciseoversight over its performance, it is important that theretained staff members understand the culture ofshared services personnel and what impact that mighthave on day-to-day contacts and work relations. Tothis end, the organisation should also work togetherwith the supplier to ensure that its staff has a clearunderstanding of the customer’s organisational culture.

Beyond an understanding of cultural differences andtheoretical knowledge, both staff should be providedwith access to practical tools and motivators to bridgethe gap of distance, culture, scope of responsibilities,such as regular conference calls with webcams, jointprojects and shared KPIs.

Figure 9

The split in scope of process functions between shared services and the retained organisation meansa need for different competencies and skill sets in the two organisations.

Low value transactions processingprovided by shared service centre

High value decision supportembedded in the local business

CHARACTERISTICS

• Focused solely on deliveringservices effectively.

• Actively manages servicedelivery and customersatisfaction.

• Embraces continuousimprovement to services

• Leverages technology toimprove efficiency.

• Structured to drive scaleeconomies and flexibility

CHARACTERISTICS

• Focused on processes thatdeliver competitiveadvantage.

• Closely aligned tocommercial activities of thebusiness.

• Skilled in decision supportand financial/riskmanagement.

• Highly flexible to changes inthe business.

Sharedservicesprovision

Localservicesprovision

Decisionsupport

Report risk mana

Transaction proce

ing and gement

ssing


Shared services personnelAs an organisation entrusts its processes into the handsof a BPO, the supplier’s staff becomes part of itsorganisation. Thus, it is important to ensure that thecustomer has some control over staffing decisions theoutsourcer makes that have an impact on thecustomer’s processes. It is advisable for people involvedin the transition to continue to transfer the knowledgethey gather on to delivery teams, to ensure a smoothhand over of processes. Also, all changes in keypersonnel of the shared services should be agreed uponwith the customer. A replacement process should bejointly agreed upon, and the customer should know inadvance about the planned changes and the proposedreplacements.

Interestingly, attrition in BPO has declined a little,partly because the global economic slowdown appearsto have made employees a little more cautious aboutswitching employers, and partly as BPO vendors haveput better practices in place to mitigate attrition. Thesepractices include working on better career paths,offering opportunities to work in various locations andworking more closely with customers to find solutionssuch as work placements with the customer, bettertransportation solutions and even introduction ofwebcams.18

‘As an organisation entrusts its processes intothe hands of a BPO, the supplier’s staffbecomes part of its organisation’

18 Tornbohm, Cathy, ‘Magic Quadrant for Comprehensive Finance and Accounting BPO’, Gartner, 17 December 2009.

REFERENCES

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FURTHER DEVELOPMENT

CONTINUOUS IMPROVEMENT LEADS TOWORLD CLASS PERFORMANCETo become a world class performer, it is important to focus on complexity reduction andoperating excellence. Continuous improvement is essential to reach the top and stay there.

Though it would seem that the drive for continuousimprovement is a given, there is a common concernthat the supplier will gain the benefit of processimprovements. Some customers prefer to restructuretheir F&A processes prior to ceding their provision toa third party so as to ensure they benefit fromprocess pooling.

Yet, the potential benefits of in-housereorganisation should be weighed against thepotential costs and loss of opportunity to implementmore profound improvements with the assistance ofan able and experienced supplier. If the organisationis able to be sufficiently specific about theimprovements and their impact it may be able tonegotiate them into the service charge. The benefitof this is that the onus would be on the supplier to

increase the charge if there is no improvement.19

Continuous improvement involves assessment andbenchmarking. The traditional continuousimprovement methodologies are Lean, Six Sigma,and Kaizen:• the Lean methodology is focused on eliminating

waste and increasing value by seeking to removenon-value adding steps in a particular process;

• Six Sigma is a rigorous and disciplinedmethodology that uses data and statistical analysisto measure and improve a company’s operationalperformance by identifying and eliminating defects;and

• the Kaizen method could be called a ‘grass roots’approach to continuous improvement asimprovement ideas identified by employees are

1. UNEARNED DISCOUNTS

Business issue• Unearned discounts were observed on a monthly

basis, with an average of €30,000 per month. • Significant time was spent on recovery and the

accounts receivable (AR) team was able torecuperate only part of the unearned discounts.

• Customer loss was about €300,000 a year.

Solution• A Six Sigma team was established to investigate

the process of unearned discounts taken by theorganisation’s customers. It found eight root causesfor the error and implemented clearer proceduresfor the calculation of the grace period anddiscounts not taken on credit note.

Benefits• Better cooperation of AR team with credit

department (monthly review of customer accounts)• Clear procedure for grace days and discounts not

taken on the credit note.• Less time needed for reviewing unearned

discounts, down to less than 5% of AR team’s time. • Money savings: non-recovered unearned discounts

down to close to zero; the value of unearneddiscounts over 90 days decreased from over€200,000 in November 2008 to about €15,000 inApril 2009.

2. STOCK ACCOUNTING AND RECONCILIATION

Business issue• A non-centralised process of monthly regional stock

reconciliations. • Enormous stock wastages due to the lack of a

structured system for analyzing non-selling stocksand no efficient process for measuring, analysingand reporting information.

• Process of loss of sales conversions of stocks isperformed manually.

Solution• Process centralised into a single centre in India to

avoid regional reconciliation.• Daily process of stock reconciliations, and in-transit

monitoring implemented.• Automation of stock conversion requests receipt

through SAP introduced.• Information analysis of non-moving and slow-

moving stocks to identify reasons for the same andsuggest remedial actions.

Benefits• Redistribution of stocks and improved stock

availability: the more efficient process of stockconversions enabled stocks to be available for salein four hours as compared to two days before thechanges.

• Identification of alternative selling points andconnecting of stocks appropriately resulted in lesswaste.

• Overall, a 60% reduction in headcount (from 25FTEs, down to 11 FTEs) was achieved through theprocess re-design.

CASE STUDIES: LEAN SIX SIGMA IN ACTION


‘World-class performers achieve excellence byfocusing on complexity reduction andoperating excellence’

supported for on-the-spot implementation by theindividuals who invent them.

The route to world class performanceOrganisations centralise F&A processes and realignthe organisation to the new model in hope ofimprovement – ie greater efficiency and effectivenessas well as greater business focus on strategy andoutcomes.

As every organisation moves towards a leanerstructure and highly effective, slim support functions,competition heightens and only those that excel inthe quest succeed. The Hackett Group defines worldclass as ‘companies that sit in the top quartile in bothefficiency and effectiveness’20 – see Figure 10 below.

World-class performers achieve excellence byfocusing on complexity reduction and operatingexcellence.

Though, according to Hackett’s research, the rateof improvement by world class performers hasslowed, it still continues to outpace the peercompanies: the annualised rate of financial costimprovement for world class has slowed from 7.0%to 6.1%, yet concurrently the rate posted by the peergroup has inched down from 5.2% to 4.1%.21

However, although world class companies can befound in every industry, they do have a number ofcommon characteristics:

• business enablement:– top performers have 11% higher EBITDA;– IT business value management top performers

deliver 63% higher net profits than peers; and– more than 2x higher annual savings from

sourcing;• operational excellence:

– 58% greater cash flow forecasting accuracy– 46% fewer billing errors; and– 25% higher IT help-desk first contact resolutions;

and• complexity reduction:

– 49% fewer applications per 1,000 IT end users;and

– 50% fewer suppliers per $bn spend.22

World class in financeWorld class is achieved through continuous businessalignment, elimination of process redundancies,standardisation of processes, and automation (seeFigure 11, on page 23). In finance, world class meanssignificantly higher cost effectiveness in all processcategories:• 47% less expensive and 52% fewer staff across all

finance areas;• 30% greater number of reports generated from a

central data repository; and• produce 43% fewer billing/payment errors.

Figure 10

Hackett value grid and axes

EFFICIENCY

• Overall finance cost as % ofrevenue

• Process cost as % of revenue• Technology cost per finance

FTE• Technology cost as a % of

revenue• Staffing levels by process

grouping• Unit cost of transactions• Utilization of self-service for

inquiry• Application complexity• Automation of transactions• Reliance on spreadsheets

EFFECTIVENESS

• Time allocated to planningand analysis

• working capital – days salesoutstanding (DSO)

• % credit sales collectedwithin terms

• Effective tax, cost of capital• Quality metrics (billing tax,

reporting, forecasting)• Cycle times and iterations• Accuracy of forecasts and

analysis• Use of balanced scorecards,

simulation models• Finance’s role in strategic

decision making• Restatement of reports

released to external agencies

High

1st quartilebreakpoint

10

10

1st quartilebreakpoint

Effe

ctiv

enes

s

EfficiencyLow High

World class

World-classefficiency

World-class effectiveness

Top

dec

ile

Top decilePeer group ABC Co

HACKETT VALUE GRIDTM

icaew.com/fmfac22

This can deliver higher value to the business:• 58% greater cash flow forecasting accuracy;• 25% fewer days required to close the books; and• 89% higher prevalence of documented strategic plan.23

Top performers consciously align their F&A servicedelivery strategy to corporate strategy while makingprudent execution capability investments. In addition,there is a very clear connection between complexityreduction and world-class performance.24

Any organisation that would like to progress to worldclass needs to:25

• identify the strategies and practices employed byleaders;

• validate current initiatives;• determine what’s possible (world class performance

metrics);

• support process implementation; and• adopt continuous best practice.

‘Top performers consciously align their F&Aservice delivery strategy to corporate strategywhile making prudent execution capabilityinvestments’

Business issue:The F&A transaction processing of a global pulpand paper manufacturer, was done in 18 countriesleading to a lack of transparency and redundanciesin the process. The company wanted to streamlinetransaction processing and reduce its costs byimplementing the right solution quickly.

Solution:GPM is a process map that defines best processflow for each F&A process and sub-process basedon proprietary BPO long-term experience and FAObenchmarking done by The Hackett Group. Thebest process flow is defined as follows:1. current process is mapped;2. current process is analysed;3. current process is matched against GPM process

flow;4. gaps between the two are identified;5. an improvement is developed;6. the benefits of the improvement are assessed;

and7. a high level GPM roadmap of moving from

current process to GPM process is prepared.

Not only does GPM assure optimal F&A processmapping, the roadmap to the improvements can becreated very quickly during the transition and quickwins can be implemented during the transition.

For the company, the additional benefit was thatany changes that needed to be implemented couldbe performed only once centrally with significant

benefit of scale, since the processes did not need tobe replicated in multiple transaction systems or inmultiple locations.

Benefits:• Elimination of exceptions and non-value-adding

tasks. • Productivity savings via better efficiency and quality. • Transparency of processes – easy to benchmark.• Better workload management. • Improved back-up structure. • Lower dependence on specific knowledge held by

very few employees. • Additional quality controls – ease of

implementation. • Elimination of errors.• Better process specialisation. • Better opportunities for improvements and

investments.• One common process model aligned with the

process based structure.

GPM benefits for the company included:• Speed to value transition: over 250 FTEs in live

process in less than 12 months.• Process improvements from Day 1 of delivery.• Standard processes across all countries with minor

legal exceptions.• Efficiency increased by 30%, also increases in

effectiveness and value.

CASE STUDY: GPM FOR RAPID FINANCE TRANSFORMATION AND TRANSITION


‘There is a very clear connection betweencomplexity reduction and world-classperformance’

19 Scott, Peter, ‘Cutting costs in the financefunction’, From Outsourcing to Offshoring,October 2004, ICAEW, p. 13.

20 The Hackett Group: ‘World-Class Finance &Role of BPO’, 15 February 2007, slide 10.

21 The Hackett Group: ‘World-Class Finance &Role of BPO’, 15 February 2007, slide 12.

22 The Hackett Group: ‘Survival of the Fittest:How World-Class Companies Weather aRecession and Position for Recovery andGrowth,’ 5th Annual European Best PracticeConference, October 2009, slide 5.

23 The Hackett Group: ‘Survival of the Fittest:How World-Class Companies Weather aRecession and Position for Recovery andGrowth’, 5th Annual European Best PracticeConference, October 2009, slide 21.

24 Bangemann, Tom, Globalization & EconomicCrisis: The Status in Shared Services andTrends for the Near and Long-Term Future,The Hackett Group, 21 January 2009, p. 7.

25 Bangemann, Tom, Globalization & EconomicCrisis: The Status in Shared Services andTrends for the Near and Long-Term Future,The Hackett Group, 21 January 2009, p. 3.

REFERENCES

Figure 11

Journey to world class in finance

Business alignment% of analysts having skills andacumen to partner with the business

World classPeer group

EliminateNumber of business performancereports per $bn in revenue

StandardiseSecondary finance applications per$bn in revenue

Automate% of T&E transactions automated

72%

34% 112%


76.8%

60.8% 21%


784

2,201

65%


7.6

1.975%

Figure 12

HfS respondents express their opinion on the innovation potentialof individual business functions.

Within the following business functions where your company has performedsome BPO:a) how much innovation, based on our definition, has currently been achieved?b) how much innovation is possible over the next 24 months, beyond your

standard operation delivery?Answer = Significant innovation

Source: HfS Research, May 2010Sample: 136 enterprise buyers of BPO services.Survey conducted in conjunction with the Shared Services and Outsourcing Network (SSON)

Analytics

Procure-to-pay

Customer care

Supply chain management

Order-to-cash

Recruitment

Document management

Payroll/compensation

Record-to-report

General accounting

Benefits administration

0% 25% 50% 75% 100%

Enterprise buyers of BPO services

Industry specific process(ie life insurance, banking, life sciences)

Significant innovationachieved today

Significant innovationpotential in 24 months

icaew.com/fmfac24

PROCESSES

TRANSFORMATION THROUGHINNOVATION AND NEW TECHNOLOGYDevelopments in technology can produce new opportunities for further improvements inprocesses. Some recent changes are outlined below.

The F&A shared services context is one in which thebenefits of automation and standardisation can be wellrealised. For years now, enterprise resource planning(ERP), customer relationship management (CRM) toolsand other integrated and standardised system platformshave been used to drive up efficiencies and productivityand drive down complexities and costs. Organisationsthat have switched to the pooling of F&A functionshave seen the benefits of these integrated solutions onthe workflow of standard processes. Customers havealso become more open to standardised solutions, andare willing to make lower customisation demands inorder to get lower cost services.26

Yet, while standardisation and automation are drivingdown costs, platforms, proprietary process tools, andsoftware innovations are now becoming increasinglyimportant for vendors not only as differentiators, butalso as a way of taking end-to-end control of theprocesses.27

This transformation option can be expensive and takea long time to implement, but the argument is that thevendor can share best practices developed in work forother customers to transform their processes, oftengoing as far as moving the services and functions to astandard platform that is the fruit of its best practices.Additionally the vendor offers to innovate to find moreefficient ways of delivery of processes that have beenhanded over.

InnovationInnovation is now the critical ingredient for mostbuyers of BPO services. Most buyers are initiallydelighted when the supplier trims a third of theircosts of one process and a quarter off another, butonce those costs disappear from the balance sheet,they quickly look at new initiatives to help themattain new thresholds of productivity or revenuegrowth.

In May 2010 Horses for Sources (HfS) Researchconducted a survey entitled ‘Are you achievinginnovation in BPO?’ in conjunction with the SharedServices and Outsourcing Network (SSON) of seniorfinance and operations executives.

Analysis of the study results revealed that achievinginnovation in BPO engagements is either criticallyimportant or quite important for 94% of the buyers;no respondent said it was not important. To add, anincreasing majority of buyers are aware they canachieve innovation, and know the potential is thereto do exactly that.

They also realise certain processes are extremelyripe for an injection of innovation. Thoughorganisations want innovation as they recognise thesignificant value it can bring to their businesses, theyalso see that some processes have potential to fosterinnovation while others, frankly, only offer a means toan end.28 (See Figure 12, previous page.)

Service integration and beyondBeyond the taking over of an end-to-end process isthe integration and the IT that it requires, allcontained in one contract. The challenge for BPOvendors is to ensure that the bundling leads toefficiencies and enables the vendors to deliver on thebusiness outcomes promised.

This is where BPO vendors are looking at newoptions in service delivery, such as software as aservice (SaaS) and cloud computing. These newsolutions are also leading to a shift in pricingmethodologies towards ones focused on transactionsand per-use pricing. Though data governance,privacy and security still comprise barriers, expertsare seeing these more as theoretical arguments andnot anything proven in practice.29 30

Software as a service (SaaS)Even within a single company, IT support has tomanage an estate of thousands of PCs, all with anoperating system that needs to be managed andupgraded, and all with office automation tools. Allthose tools need to be kept up-to-date with patchesand bug fixes, in a way that does not cause aproblem to the end user. Meanwhile, most users justwant to get on with their work without having tomaintain their PC.

‘Organisations that have switched to thepooling of F&A functions have seen thebenefits of these integrated solutions on theworkflow of standard processes’


This is why many are exploring the idea of SaaS.And there are two good reasons why this has becomea highly viable option: web browsers are a lot betterthan a few years back so applications can exist withina browser hassle-free; and stable broadband accessmeans it is a lot easier to rely on online applications.There are still questions over data security, thepracticality of having an ‘always online’ system, andthe fact that cloud-based SaaS systems have to bemore standardised, but this is clearly an idea that is inthe mainstream.

The attraction for SaaS lies in the ability topurchase transaction-based services without having toown the asset, while at the same time maintaining acompetitive edge in terms of performance. Thechallenge that the customers face today is topersuade the suppliers to develop such solutions bytaking over their current legacy (people andtechnology) and turning it into a service (offered viaa SaaS model, for instance) that is highly tailored tothem.

Cloud computing Cloud essentially involves pay-as-you-needinfrastructure for applications and storage from athird party. Much like SaaS, the advantages aresimilar for cloud in regards to cost savings, andinclude economy of scale, continuous improvement,reduced upfront infrastructure investment, and morerapid deployment. Improved efficiency pointstowards reducing the workload of the internal IT staffin areas of hardware including maintenance,configuration, and interoperability.

In-house personnel are freed up to focus on morecritical needs and initiatives. The agility offered bythe cloud enables organisations to rapidly ramp up ordown as needed within a short time frame at reducedcost.

Many suppliers, including specialised firms, havedeveloped robust tools to bridge the gap betweenthe organisation and the cloud. Many of these areoffered as a platform as a service (PaaS).

Brave new world of communications The rapid spread of enterprise social networks is still abig puzzle for most senior managers. As they try toset corporate policies for social networks thechallenge is how to accommodate the constantlyshifting event-driven environment in which more andmore enterprises and people are finding themselvesworking with static statements of knowledge thatrefer to previous experiences. These previousexperiences may not be true for the current event.Even if they have some relevance, trying to make adirect reapplication of previous knowledge could bedifficult as the context is different.

Now consider what Twitter (social network) mightbring to this. First, our friends (defined community) areoffering continual insights to their activities and thuswe have the benefit of ‘knowing’ more about thewhole current situation in real time. This means wenever feel left out of knowing about what else isimportant to other members of our community. Thiswould ensure that we are optimising any activity inlight of being aware of the current situationcomprehensively.

The power of ‘real time’ sense and response thatharnesses many individuals continuously createsexpertise. This is opposed to periodically harvested andindexed knowledge. Collectively they provide anoptimised ‘intelligent’ decision – which is the role forsocial networks. It does not replace existing knowledgeor processes. It merely provides a constant dynamicenvironment in which people can take the first level ofaction that should then direct the activity into theappropriate enterprise process.

26 O’Brien, Patrick, ‘The Future of BPO delivery’,Ovum, 8 July 2010, p. 7.

27 O’Brien, Patrick, ‘The Future of BPO delivery’,Ovum, 8 July 2010, p. 2.

28 Fersht, Phil, HfS Research Report: ‘DesperatelySeeking Innovation in Business ProcessOutsourcing: Enterprises Speak Out’, 2010.

29 O’Brien, Patrick, ‘The future of BPO delivery’,Ovum, 8 July 2010, p. 10.

30 Fersht, Phil, HfS Research Report: ‘DesperatelySeeking Innovation in Business ProcessOutsourcing: Enterprises Speak Out’, 2010.

REFERENCES

‘The attraction for SaaS lies in the ability topurchase transaction-based services withouthaving to own the asset’

icaew.com/fmfac26

31 ‘Q&A Interview with Tom Bangemann’, SharedServices & Outsourcing Network, July 2010, p. 2.

32 ‘Q&A Interview with Tom Bangemann’, SharedServices & Outsourcing Network, July 2010, p. 2.

REFERENCES

CONCLUSION

TRANSFORMING FAOWhen undertaking such massive organisational changes, it is important to have asupplier you can depend on to deliver results.

There is nothing wrong with the principle of movingtransactional work into shared services in low costlocations to leverage wage arbitrage, but there is analmost similar benefit which organisations should lookto glean on the productivity side.31

Tom Bangemann, VP Transformation at The HackettGroup, provides a worthwhile perspective for BPOcustomers and suppliers alike: “If you look at averagelevels of automation, for example in AP and AR, thenautomation levels today are between 20% and 40% forthose processes. That means that 60% to 80% remainsmanual. In world-class companies you would seedouble these automation ratios. So you can easilycalculate the difference in productivity. I know that forcompanies that are at 20% automation, 80% willsound unreal — and they won’t believe the numbers.But of course that is the point. The ratio of world-classcompanies to others is 10%. The fact that these 10%manage to achieve the levels they are at gives the restsomething to aim for. Most of them weren’t world class10 years ago and it’s been a process to get there — butit’s possible.”32

Are you ready to take on that transformationalchallenge as an organisation? If so, it is critical to lookfor a supplier capable of evaluating the design of aprocess to proactively come up with process

improvements and best practice ideas. A good sourcingpartner will also be one able and willing to move upthe value chain in terms of scope, beyond justtransactional activities.

You must find a vendor that you can trust to worksuccessfully in your organisational environment todeliver from a social and legislative setting that youmight not be familiar with. The vendor needs sufficientsupport and hands-on management involvement toenable it to take on processes and activities smoothlyand successfully. And, most importantly, the vendorneeds sufficient trust to nurture a partnership in whichboth parties feel the weight of responsibility for thesuccess of the outsourcing relationship.

ABOUT CAPGEMINI

Capgemini, one of the world’s foremost providers ofconsulting, technology and outsourcing services,enables its clients to transform and perform throughtechnologies. Capgemini provides its clients withinsights and capabilities that boost their freedom toachieve superior results through a unique way ofworking, the Collaborative Business Experience™. Thegroup relies on its global delivery model calledRightshore®, which aims to get the right balance ofthe best talent from multiple locations, working as oneteam to create and deliver the optimum solution forclients. Present in more than 35 countries, Capgeminireported 2009 global revenues of €8.4bn and employsover 100,000 people worldwide.

Capgemini’s expertise is recognised in business processoutsourcing (BPO) with a solution portfolio that spansfinance and accounting, customer operationsmanagement, procurement and supply chainmanagement, assurance management, human resources,knowledge process outsourcing services, as well asvertical solutions for the financial services industry. Aspart of Capgemini’s Rightshore® delivery network, morethan 10,500 BPO professionals provide services to clientsworldwide 24 hours a day, seven days a week, in over 35languages, from centers located in Australia, Brazil,Canada, Chile, China, Guatemala, India, Poland, Swedenand the United States. More information is available atwww.capgemini.com/BPO.


APPENDIX

GLOSSARYA selection of outsourcing-related terms used in this report are explained here.

Bestshoring is the process of identifying the best location to move manufacturing, IT orbusiness processes for a company. The decision is based on quantifiable criteria which areused to take subjective and political input out of the decision cycle.

Business process outsourcer(ing): term used to identify an organisation whose primaryfunction is to handle business processing as a contracted outsourced partner.

Buyer owned and maintained shared services.

Finance & Accounting (F&A) Outsourcing.

Far-shoring means offshoring to countries which are geographically far from the client’slocation.

The opposite of outsourcing. The act of bringing inside an organisation a function thathas been performed outside the organisation (outsourced). Insourcing (or contracting in)is also often defined as the delegation of operations or jobs from production within abusiness to an internal (but ‘stand-alone’) entity that specializes in that operation.

A strategy that treats a given function – such as IT – as a portfolio of activities, some ofwhich should be outsourced and others of which should be performed by internal staff.This approach moves away from the idea that all of a function should be viewed as acommodity, easily handed over to a service provider. Also known as ‘selective sourcing’.

Nearshoring (also known as ‘nearshore outsourcing’) means sourcing service activities to aforeign, lower-wage country that is relatively close in distance.

The practice of hiring an external organisation to perform some business functions in acountry other than the one where the products or services are actually developed ormanufactured.

Offshoring describes the relocation by a company of a business process from one countryto another – typically an operational process or supporting processes.

Outsourcing involves an organisation passing the provision of a service or the execution ofa task previously undertaken in-house to a third party to perform on its behalf.

Shared services refers to the provision of a service by one part of an organisation or groupwhere that service had previously been found in more than one part of the organisationor group.

Bestshoring/rightshoring

BPO

Captive SharedServices (CSS)

FAO

Farshoring

Insourcing

Multi-sourcing

Nearshoring

Offshore outsourcing

Offshoring

Outsourcing

Shared services

icaew.com/fmfac28

ADDITIONAL RESOURCES

BOOKS, JOURNAL ARTICLES AND MORE

ELECTRONIC RESOURCESAvailable online 24/7 for ICAEWmembers icaew.com/eLibrary

eBooksOutsourcing handbook: how toimplement a successful outsourcingprocessby M Power, Kogan Page, 2006,xvi, 222ppISBN: 0749444304

eJournal articles‘Best practices in business processoutsourcing’by M Vora, Financial Executive, Vol.26, Issue 5, June 2010, pp.44-47

‘Send it to India?’by C Pacey, Accountancy, Vol.145,No.1399, March 2010, pp.40-41

‘China’s emerging role in globaloutsourcing’by N Wright, China Business Review,Vol. 36, Issue 6, November/December 2009, pp.44-49

‘Inside-out thinking’by S Hanson, Director, Vol.63, No.2,October 2009, pp.62-68

‘Expanding contractors’by T Cooper, Financial Management,September 2009, pp.19-24

‘Out of sight or out of mind?’by L Meall, Accountancy, Vol.144,No.1393, September 2009, pp.49-50

‘Outsourcing for SMEs: a myth or asuccessful reality?’by E van den Berg, CreditManagement, June 2009, pp.24-25

‘Outsourcing becomes luxury inrecession’by J Faith, International Tax Review,Vol.20, No.5, June 2009, pp.36-38

OTHER RESOURCES

BooksOutsourcing agreements: a practicalguideby G Kimball, Oxford UniversityPress, 2010, xxiii, 527ppISBN: 9780199575220

Outsourcing contracts: a practicalguideby A Lewis, City & FinancialPublishing, 2009, xxx, 671ppISBN: 9781905121373

The FD’s guide to outsourcing(Business Guide)by REAL FD, Caspian, 2009, 64ppISBN: 190184465X

Offshore accounting outsourcing: thecase of Indiaby B Nicholson, ICAEW Centre forBusiness Performance, 2008, 54ppISBN: 9781841525426

Articles

‘Under one roof’by C Kader, International AccountingBulletin, No.470-471, July 2010,pp.6-7

‘At arm’s length’by A Thomas, Chartered Secretary,June 2010, pp.28-29

F&M Special Report

‘From outsourcing to offshoring’,SR5, by Peter Scott and NinaSodha, October 2004icaew.com/index.cfm/route/126586

Previous faculty special reports andarticles can be accessed free ofcharge to faculty members aticaew.com/fmsearch

Further information and resourceson outsourcing are available via theLibrary & Information Service’s website icaew.com/library

ICAEW members can obtain all ofthese books and articles from theLibrary and Information Service.Books can be posted out free ofcharge to your work or homeaddress. Journal articles can besupplied for a small charge. Contactthe library on 020 7920 8620 [email protected]


SPECIAL REPORTS

PREVIOUS SPECIAL REPORTSThe faculty special reports summarised here were published over the past 15 months and, along with manyothers, are available to members at icaew.com/specialreports. They comprise a range of in-depth reports on asingle topic, sometimes by a single author, sometimes by a range of experts. They are a vital source of expertiseon a variety of subjects.

DEVELOPING A VISION FOR YOURBUSINESSThis report, by a range of authors, includingacademics and consultants, aims to offerpractical advice on developing a vision foryour business, dealing with how to define avision, the role of the FD and how to tell a

vision story. You will also find suggestions onhow to run workshops with employees todevelop a vision that successfullyencapsulates the ethos of your business. Akey message is that vision statements arecritical, and need time spent on them if theyare to be really effective.

Strategic planning September 2010 (SR30)

WRONGFUL TRADINGWhen trading is tough, companies canbecome distressed. This report provides athorough examination of ‘wrongful trading’,as well is its implications for directors. It offersa rundown of the legal aspects, including theroles and responsibilities of directors, and

provides some practical examples of howcases have been interpreted in court. Alsocovered is how to monitor performance in abusiness, to support decision-making andactions if trading becomes distressed. Thisreport does not represent legal advice butoffers some key points to be considered.

Company law October 2009 (SR26)

IFRSs – A BRIEFING FOR CEOsAs a chartered accountant in business youneed to keep up to date with the standardsthat apply to financial reporting. You alsoneed to have a thorough understanding oftheir business implications. This special reportprovides exactly that, in a practical and

accessible format. These concise and easy touse briefing notes, produced by theInternational Accounting StandardsCommittee Foundation, provide summaries ofall the consolidated versions of InternationalFinancial Reporting Standards (IFRSs) issued at1 January 2009, in non-technical language.

Financial management June 2010 (SR29)

STARTING A BUSINESSThis report aims to provide accountants witha realistic and motivational overview of whatto consider when starting a business. Thereport focuses on areas that accountantsmay find more difficult, such as makingsales, or that may be overlooked, including

researching and testing ideas beforejumping in with detailed forecasts. It alsofeatures several case studies of successfulfinance professionals who have made theirventures a success. They share theirexperiences as well as the pitfalls they haveencountered along the way.

Entrepreneurial issues March 2010 (SR28)

INVESTMENT APPRAISALInvestment appraisal is a key area in mostbusinesses. Decisions concerning capitalexpenditure, coupled with strategicplanning, marketing and organisationaldesign are frequently critical in determiningthe future success of the business. Based on

a Guidance to Good Practice booklet issuedby the faculty in 1986, this report explainsthe issues that finance departments shouldconsider and offers advice to managers onhow they can contribute effectively todecision making and control during thisprocess.

Financial management December 2009 (SR27)

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