Author: Sydney Saffold

The Rise of Financial Planning & Analysis Outsourcing | Sherpas in Blue Shirts

In the four years I worked as a transition manager for a market leading service provider before joining Everest Group, I led multiple finance and accounting outsourcing (FAO) migrations for global clients. While all of them involved transition of transactional processes such as accounts payable (AP), accounts receivable (AR), or general ledger accounting (GL), very few involved “high-end” processes such as Financial Planning & Analysis (FP&A)

I came to realize that, especially in the past, organizations have hesitated to outsource FP&A processes for several key reasons. First, FP&A is highly complex as it is domain-intensive and requires superior analytical skills. Second, the boundaries of the function are not easy to draw as it much more typically embedded across the organization than handled by a dedicated team. And third, unlike transaction-intensive processes that are easy to document, FP&A function involves considerable ad-hoc and subjective knowledge that resides with individual analysts, and the risk of losing this undocumented knowledge during transition makes companies reluctant to outsource their FP&A scope.

At the same time, FP&A outsourcing is gaining increasing traction in the marketplace, albeit more frequently in contract extensions than in new contracts. Everest Group research indicates that most enterprises start their FAO engagements by first moving transactional processes to their service provider, and then gradually transitioning higher-value processes such as FP&A as the relationship matures and the buyer gains more trust and confidence in the provider’s  ability to deliver quantifiable value.

Buyers’ increased leverage of outsourced FP&A processes results from the multiple benefits it can achieve for them. These include:

• the ability to monetize data for business insights, strategy design and implementation
• significant top-line and bottom-line impact from analytical insights into areas such as cost management, product profitability, inventory, and project appraisals, etc.
• enhanced managerial efficiency, as accessing and extracting data from disparate systems, collating and cleansing data to prepare regular/ad-hoc reports, and data analyses can consume as much as 40 percent of managers’ time
• 40-60 percent savings in analyst costs due to labor arbitrage
• transformation-oriented productivity benefits that enable at least two to three percent savings year over year three to five years after transition

While the benefits are many, buyers must still take a cautious approach as the success of FP&A outsourcing largely depends on the transition given the inherent complexities. They must also recognize that robust process documentation is not only a key to the success of FP&A transition but also a means to reduce dependence on in-house analysts over time.

Yes, there are risks to outsourcing FP&A, but the value proposition is strong. And smart enterprises will increasingly evaluate the risk/value equation, whether with their existing or another FAO provider.

To learn more about FP&A outsourcing, please click here to gain access to Everest Research Institute’s just-completed research report, “Moving beyond Transactional FAO: The Rise of FP&A Outsourcing,” which covers topics including market size and buyer adoption, value proposition and contract characteristics, the service provider landscape, and implications for key stakeholders.

Why Sherpas in Blue Shirts? | Sherpas in Blue Shirts

Consult  (v.tr.) To seek advice or information

Sherpas in Blue Shirts – what an odd image. Burly, weathered mountain guides certainly don’t match the mainstream view of well manicured, pinstriped professionals who jet in and out of clients’ offices offering sage advice for substantial fees. But perhaps they should. For hundreds of years, mountaineers have sought out experienced guides to aid their ascent, specifically those who knew the mountain’s landscape, weather and routes. The arrangement between the climber and Sherpa was truly a partnership based on alignment of interest. The adventurer wanted to reach the top. The Sherpa wanted to be paid. Dead clients don’t pay. At least not very well.

So how did the Sherpas develop such legendary status? Why did their clients readily share their experience and recommendations for the guide’s services? Ultimately, how did the Sherpa manage a successful trip every time? I believe it was because he/she never strayed from understanding four basic things:

• What is the client’s ultimate goal?
• What are the client’s capabilities?
• What are the environmental conditions influencing the trip?
• What is required of the Sherpa to ensure the client achieves his/her goal?

Racing to the top in record time would have robbed the client who wanted to achieve a well-paced, spiritual journey. Ignoring a client’s poor health and shoddy equipment often resulted in the injury or death of someone in the climbing party.

Perhaps it’s time we begin to rethink how consultants and their clients engage. Perhaps we should expect a true alignment of interest and active participation by consultants. Perhaps we need to confirm that they are providing an approach that is unique to the combination of the client’s objectives, capabilities and surrounding environment.

Perhaps it’s time we trade in those pinstripes for an ice axe and ropes.

Japan at Your Service – A Keane Idea? | Sherpas in Blue Shirts

The wheel of acquisitions in the global services provider space continues to turn – last Friday NTT Data and Keane announced a definitive agreement for NTT to acquire Keane. Keane, a privately held IT service provider serving primarily the United States and Canada, is a 12,500 employee-strong player with a 45-year track record of providing services.

The two key imperatives for large “SIers” (as those in Japan label System Integrators) in Japan has been building an annuity book of business (diversification from project and hardware revenues) with an intentional mix outside of the homeland. The latter has meant primarily entry into mature Western markets of North America and Europe – markets they have struggled to capture without market access, offshore delivery models and understanding of the sophisticated market. The imperatives have not been unique to Japanese players, some Korean Chaebols have been struggling with similar issues.

NTT has been quite busy over the last several years.

• Acquisitions in Europe of SAP consultants intelligence AG and Cirquent GmbH (BMW’s former internal IT shop)
• Asia/Pacific acquisitions of Business Formula (M) Sdn Bhd and Extend Technologies Group Holdings Pty. Ltd.
• North American M&A of M.I.S.I. Company Ltd., Revere Group Limited, intelligence Inc., Intelligroup, Inc. (US$141 million revenue), and now Keane (US$788 million revenue).

Additionally, there has been continuous chatter about NTT being in discussions with India-based Patni Computers, a Tier 1 offshore wannabe, but still short of the US$1 billion revenue figure, which would have added significant offshore capability, a key component of the delivery model to serve Western markets and ofcourse a large client base across these markets. While NTT is still far short of its stated ¥300 billion non-Japanese services revenue aspiration, I speculate that Keane provides a customer base and delivery capability that reduces the likelihood of something happening between NTT and Patni in the near term.

Keane’s application development and maintenance experience plus infrastructure management capabilities will accelerate NTT’s expansion into the United States and Canada. NTT, is a diversified Japanese conglomerate with businesses in telecom and IT services in both the B2B and B2C spaces. NTT’s IT services business, NTT Data, focuses mainly on Japan and other parts of east Asia, with a core competency in IT infrastructure management. It has been rapidly strengthening its globalization and American agenda.

So what does this mean? NTT’s ongoing global inorganic strategy reinforces emerging trends in business growth and M&A driven consolidation in the industry and raises questions about what’s next:

1. East Asia majors will continue to seek assets to drive the multiple objectives of building a large book of annuity business, globalization and creation of offshore delivery capability. The order and priority will vary depending on starting points but all three levers will play out soon… and largely through M&A.
2. Large “hardware” companies’ efforts to expand their services businesses into new areas are reaffirmed. Xerox acquired ACS to access a higher growth business process services that built upon its document management services. Dell acquired Perot Systems to do the same in IT services. The consolidation wave appears to be moving as much across the industry as within the industry.
3. Services business models are continuing to expand globally in pursuit of growth – but growth on a relative basis. Similar to how Accenture, IBM, Infosys, HP, TCS, Wipro, and others are looking for growth in developing markets beyond the slowing market in the United States, Japanese players see the US as a more attractive growth opportunity than their domestic market (although all are also eying China with great interest).

Will we see more moves by deep-pocketed Japanese players into North America and Europe? I firmly believe that the Japanese Samurais are on the prowl, and more targets will be taken out as the large players further their plan to:

• Diversify from products and build services, more importantly annuity based IT outsourcing, business
• Globalize their businesses to enter Americas, Europe to derisk growth and look for attractive opportunities
• Build offshore capabilities in India, China to serve local market and more importantly create the platform for delivery for Western client base

Who is next in line to buy? The other large SIers Nomura, NEC, Fujitsu, Hitachi – all have “insignificant” non-Japan-services (i.e., outsourcing) revenue; NTT’s global acquisition march may be the wake-up call they need to stop hitting the snooze button. Many have been contemplating strategies but slow to act. Organic strategies is nigh impossible. Acquisitions are an imperative if they want to “move the needle.”

Who is the likely target? This is more interesting and complex. There are some candidates in the onshore world, which may not be doing well but provide enough interesting capabilities that furthers the aspiration of these large Japanese giants. Speculation about Indian offshore players is plentiful. The Patni deal is yet to happen for a variety of reasons and it is likely that other deals will always face valuation misalignment. When Satyam went belly up there was interest from the Orient but it lacked the urgency required in that situation. There could be Chinese assets as well, but many of those potential targets are embryonic and likely to fall short of near term revenue aspirations… this is the million or should I say… billion dollar question!