Tag: F&A

HP – In the MooD for F&A Visibility | Sherpas in Blue Shirts

I recently had a briefing with HP Enterprise Services about HP BPO Flight Deck, a visual F&A performance monitoring and reporting tool focused on processes such as order to cash, source to pay and record to report. The flight deck is based on MooD software, which produces visual performance reports based on an enterprise business model that is built to reflect the client’s organization. This typically includes interrelationships between components and processes. HP is offering the tool as part of its BPO proposition in every deal, to engage with clients on transforming processes from the earliest stages of a procurement cycle.

The intention is to help clients increase visibility of F&A performance across the organization to manage operations better and to help with achieving business outcomes. Views can include specific initiatives such as electronic invoicing or dynamic settlements. HP also highlights the application in multi-sourced outsourcing deals, with HP BPO Flight Deck used to measure and monitor service provider performance as well as outcomes and issues. Other features include trending information and scenario-based planning capabilities, e.g., what would be the knock-on effect on processes if certain factors were altered.

This tool could potentially addresses the kind of F&A issues that Everest Group’s buy-side clients often highlight to us, including:

  • The need to get a broader and yet in-depth view of what is going on in the organization, what is broken and what needs changing
  • To get clarity and identify choices that support the organizational vision, strategy, framework, scope and approach
  • How plans are progressing and if an implementation or new F&A initiative is meeting its objectives

Getting that end-to-end view of processes is not easy though. One of the biggest challenges that organizations face is getting their data in order. Data challenges typically include:

  • Data from disparate systems having different definitions and formats making it difficult to compare and contrast information
  • Poor data quality – data that is simply not maintained, out of date and/or erroneous

HP and MooD have worked together to address some of the typical data integration issues that organization face when seeking this kind of end-to-end view of operations. The offering includes pre-built data dictionaries, templates and ready-built connectors for major enterprise systems and their reports.

Deployment can be done by degrees starting from a consulting engagement to map out the enterprise business model, and data taken for a sub-set of processes. A hosted proof of concept can be built, if required, before the full deployment is taken live in the client’s production environment. The software can also deal with data quality issues as part of its extract, transform and load (ETL) processes which include automated checks and fixes for standard types of issues, such as different date formats or typing errors in standard terms.

With HP BPO Flight Deck, HP aims to address many of the data challenges that organizations face when going for global process views but at the end of the day, organizations still have to get their data practices in order to be able to make the most of such tools. That said, in these days of intense global competition in business, there are strong drivers, such as year-on-year efficiency and profitability improvement targets, for coordinated group-wide action for every organization to improve its data. Many organizations are also proactively looking to gain end-to-end views of their F&A operations.

HP’s product addresses growing demand and adds an edge to its F&A offerings with the flight deck and its price built into every deal. It also supports HP’s strategy to provide a new style of BPO, based on data and performance analytics.

HP’s challenge is to help potential clients build the business case for the technology. As part of this, it highlights the case of an oil company that saved circa $23m in the first six months of deploying a similar MooD-based tool for its IT. HP believes the savings were possible because the client’s management team got visibility of problems and was able to take immediate action to fix them.

HP BPO Flight Deck has been deployed at one major client in the U.S. and is currently being implemented for another client in the UK.

Accounting for Outsourcing Costs: Expense or Capitalize? | Sherpas in Blue Shirts

A question we often receive from CFOs in the U.S. is how to treat the costs associated with outsourcing.

In 2007, Everest Group wrote a well-researched white paper on this topic, citing U.S. Generally Accepted Accounting Principles (GAAP). While seemingly a long time ago, the conclusions in the paper are still very true today, with minor updates.

Following are our suggestions on accounting treatment for four key categories of outsourcing costs: (In addition, see how our Finance and Accounting research helps orgs optimize global F&A operations).

#Cost CategoryAdvised Treatment*
1.Exit or restructuring costs: These are costs related to employee termination benefits, contract termination, employee relocation, and facilities consolidation. These may include, but are not limited to: costs incurred in selling or otherwise disposing of a part of the business; consolidating and/or closing selected sites; and relocating operations from one site to another. The key here is that the cost must be incremental to other costs incurred in the course of normal operations, or be associated with a contract that will either be terminated or completed.Expense: Outsourcing implementation costs almost always need to be included in results from continuing operations, but restructure costs can be disclosed on a line item basis within the income statement.
2.Asset impairments: These are costs related to asset retirement abandonment or sale (primarily related to the IT infrastructure); an asset becomes impaired when its carrying value exceeds its fair market value. This can also be classified as a restructure cost.Note: A sale of assets by a client to a service provider at a price above FMV does not eliminate the requirement to record an impairment.Expense: Should be included in the income statement in results from continuing operations.
3.Transition and transformation costs: These are costs related to assessment, process reengineering, solution design, workforce redesign, and parallel processing. These includes costs associated with the preparation and administration of the RFP process, current state assessment, recruiting, training, and internal-use software acquisition, development, and implementation.Note: A scenario in which the service provider initially incurs these costs and then either re-bills them to the buyer or bundles them with future service fees does not eliminate the requirement for the buyer to recognize an expense.Expense: Although transition and transformation costs are not recorded on a line item basis in the income statement, these costs need to be disclosed in the footnotes to the financial statements if they are material in amount.
4.Software implementation costs: These are costs strictly associated with the application development stage – acquisition license fees, configuration and integration, custom coding, installation to hardware, testing and parallel processing, and primary data conversion costs.Note: Most other software-related costs (implementation planning and evaluation, user training, and post-implementation operating) should be classified as transition or transformation costs, and must be expensed in the period they are incurred.Capitalize: Most of the costs associated with the application development stage may be capitalized.

 

As noted above, both exit and asset impairment costs should, in most instances, be disclosed in results from continuing operation, although they may qualify for disclosure as restructuring cost. However, if they are the results of an exit or disposal activity that involves a discontinued operation as defined in accounting standards codification section 205-20, they should be included within the results of discontinued operations.

For further information on the timing of expense recognition and the technical nature of the accounting treatments, readers should reference the following authoritative sources applicable in accounting standards codification section:

  • 205-20: Presentation of Financial Statements – Discounted Operations
  • 350-40: Intangibles–Goodwill and Other – Internal-use Software
  • 360-10: Property, Plant and Equipment
  • 420-10: Exit or Disposal Cost Obligations
  • 720-45: Other Expenses – Business and Technology Reengineering 

The U.S. Securities and Exchange Commission (SEC) recognizes the financial accounting and reporting standards of the Financial Accounting Standards Board (FASB) as “generally accepted” for purposes of the federal securities laws. The SEC is strongly committed to a single set of global standards, and recognizes that International Financial Reporting Standards (IFRS) is best-positioned to serve the role of that single set of global standards for the U.S. market and the ongoing convergence process between the FASB and the International Accounting Standards Board (IASB). The SEC does not permit its domestic issuers to use IFRSs in preparing their financial statements; rather, it requires them to use US GAAP. The SEC permits but does not require its foreign private issuers to use IFRSs as issued by the IASB in preparing the issuer’s financial statements.
* This guidance is based on Everest Group’s advice to its clients. In addition, the information is based on U.S. GAAP, and may not be in exact alignment with IFRS and IASB. Buyers should always consult with both their internal financial accounting staff and external auditors to determine how they should address the specifics of their situation.

Genpact’s Q4 Performance: A Cautionary Tale for All Service Providers | Sherpas in Blue Shirts

The past year was not kind to Genpact. Q4 results show it underperformed the S&P by 25 percent over the last six months and by 7 percent year to date. This is surprising given that Genpact is a great organization with a record of superb delivery and a history of great performance. Unfortunately Genpact is a victim of the changing market and its sweet spot has lost its sweetness. We expect other providers will become victims as this story plays out again and again across the services industry. It’s a cautionary tale about growth engines.

Genpact does many things well, but its finance and accounting BPO practice has been the heart of its growth engine. Its F&A sweet spot was the $50-$100 million transaction size, and historically it expanded those contracts to even greater value. The sad fact is the number of new F&A deals of that size coming into the marketplace dropped precipitously as the market matured.

Today’s F&A transactions are different. Organizations often bundle F&A into larger transformation deals — where Genpact has a disadvantage against players like Accenture and IBM. They are better positioned to win broad transformation contracts, and they’re also the masters of the sole-sourced deals that now hit the F&A space.

The maturing market left Genpact with a string-of-pearls strategy, requiring stringing together a lot of small transactions to make up the difference. But there aren’t enough of them to make up for the volume of growth Genpact enjoyed in its sweet spot for the past five years.

To Genpact’s credit, it seems to be doing everything right to offset the shifting market: headquarters shifted to the United States, a world-class sales and marketing executive took over as CEO. Genpact saw the market shift coming and worked very hard to set up new lines of business. But its core F&A market matured faster than Genpact could put the new growth engines in place.

Even the best firms struggle to keep their growth engine up. We believe this story will be repeated again and again across the services industry as the labor arbitrage market matures and growth engines slow.

Have a question?

Please let us know how we can help you.

Contact us

Email us

How can we engage?

Please let us know how we can help you on your journey.