Tag: FAO

Did Your SMEs Derail Your Finance and Accounting Outsourcing Plans? | Sherpas in Blue Shirts

It’s a curious conundrum. Finance and Accounting Outsourcing (FAO) has proven its ability to deliver savings of 30-45 percent, and usually provides other non-financial benefits such as better transaction documentation/auditability, faster and richer reportability, and dynamic workflow.

So why are FAO transitions far more hesitant and spasmodic than those of Information Technology Outsourcing (ITO) or other Business Process Outsourcing (BPO) functions?

The answer may reside among enterprises’ subject matter experts (SMEs), who may unintentionally disrupt the FAO progression. Now, before CFOs, controllers, or accounting directors raise their arms in protest, let me explain.

Consider that F&A, with its inflexibly cyclical, month-end, quarter-end, and year-end closing peaks, regularly places a significant and critically important load on SMEs plates. Is it any wonder that they request breathing room – sometimes of several weeks, or even months – between outsourcing exploration and execution, so they can focus on top-down priority projects?

Consider that F&A has the potential to immediately impact stock price or create the possibility of legal proceedings, thus negatively affecting the business to a far greater extent than any other function. Is it any wonder that SMEs, often inadvertently, spawn enough fear, uncertainty, and doubt about missing internal and external reporting cycles, and thus raise the “real and present danger” flag about outsourcing unless certain components are de-scoped?

Following is Everest Group’s advice for avoiding or counteracting SMEs’ derailment of FAO plans:

  • Acknowledge that value is greater in FAO than in most other functions, and it is worth the extra effort
  • Recognize competing demands, and adjust the timeline and/or add extra external resources to compensate
  • Invest time in reference calls and site visits to build comfort that FAO works elsewhere in equally complex environments
  • Commit internal SMEs’ time to explore the intricacies of their areas directly with service provider SMEs to build comfort that FAO can work in their own environment
  • View demonstrations of workflow, intelligent document management, and other service provider tools to help drive excitement for a better way
  • Where de-scoping occurs, consider it a first step to future expansion, rather than a “deal killer”
  • Engage senior leadership including key client stakeholders early and often to witness the value potential and garner their support in driving past obstacles

Have your organization’s FAO plans been disrupted by internal forces, either unintentionally or purposefully? Do you firmly believe that outsourcing in all but the most basic activities is too risky for F&A? Please share your experiences and perspectives with other readers!

Capgemini Acquires VWA: 2011 Truly is FAO’s Year for Acquisitions!!! | Sherpas in Blue Shirts

In my blog earlier this year on Serco’s decision to purchase Intelenet, I posed the question if 2011 would be FAO’s year for significant acquisitions. After all, it was the fourth major deal of the year, following on the heels of iGATE-Patni, Genpact-Headstrong, and EXL-OPI. With Capgemini’s just-announced acquisition of Vengroff, Williams & Associates, Inc.’s order to cash (O2C) business, which operates under the name VWA, we certainly have our answer.

The increased competitive intensity (and thus the need for differentiation) in the global FAO market is in some ways reflected through the heightened M&A activity we’ve seen this year. However, unlike some of the other acquisitions that were driven by scale consolidation, Capgemini-VWA can be seen as driven by several other themes that are also relevant in today’s global FAO market:

  • Acquisition of niche players by established leaders to augment their capability – This deal will enable Capgemini to strengthen its leadership position in the FAO market through enhanced O2C offerings. Everest Group’s analysis suggests that O2C is the single largest segment in the global FAO market, accounting for nearly 35 percent of the market. O2C BPO services can help clients reduce revenue leakage, accelerate the cash-flow cycle, and limit bad debt expense – outcomes that clients are increasingly demanding in the current economic scenario. The acquisition not only brings marquee clients such as Yamaha, Chiquita, Cisco, News Corp, Walt Disney, Oracle, Cincinnati Bell, and Mattel into Capgemini’s portfolio, but also may enable it to expand the outsourced relationship with some of these companies. Additionally, VWA possesses strong process capabilities in credit analytics, cash application, and collections, supported by leading dispute and deductions toolsets
  • Building onshore O2C presence – For reasons such as increased reservation against offshoring jobs in the U.S., or O2C clients’ preference for onshore delivery of outsourced collections services for their high-value accounts, many FAO service providers have invested in expanding their onshore presence. With this acquisition, Capgemini gains onshore O2C capabilities as over 300 experts, mainly based in the U.S. (with the rest in six locations across Europe) will join its existing BPO organization
  • Enhancing platform-based solutions – With increasing market maturity, the FAO value proposition has evolved beyond cost arbitrage and is now driven by best-in-class process expertise and technology-led solutions. A key asset that comes with this acquisition is VWA’s Webcollect O2CPro platform, which combines collections risk management, predictive account scoring, and portfolio management, and provides multi-lingual and multi-currency support. Capgemini BPO has already integrated Webcollect O2CPro software into its F&A offering through the ongoing partnership it has had with VWA for over a year. With this move, Capgemini has extended its software and services platform-based BPO strategy that was developed through its 2010 acquisition of the IBX platform

With its strong capabilities in O2C, VWA has long been an attractive acquisition target. Kudos to Capgemini for not only seizing the opportunity but also for enhancing multiple aspects of its O2C value proposition in the process.

Business Process as a Service (BPaaS): New Houses in Shabby Neighborhoods | Sherpas in Blue Shirts

The BPO industry has long been heralded by McKinsey & Company and NASSCOM as the next growth engine of the global services industry. And for years, McKinsey has pointed to the theoretically huge, unaddressed services space that, in theory, could be open to labor arbitrage. But the reality is that the BPO industry itself is searching for the next big growth driver, as it continues to disappoint investors, providers, and customers as a source of additional value beyond labor arbitrage. This relentless, if misplaced, faith in the segment’s value prospects reminds me of the modern proverb attributed to Yogi Berra, “In theory there is no difference between theory and practice. In practice there is.” 

However, the newly built BPaaS homes and those under construction may help spruce up the increasingly shabby BPO neighborhoods. BPaaS is attractive as it has the potential to substantially reduce a client’s TCO when compared to a traditional BPO model. It also promises a reduced capex and a utility-based opex. But perhaps the biggest benefit is the nirvana state of standardization and process harmonization that it can offer.

So, who’s building? And where?

Capgemini made a significant play in the procurement BPaaS space with its acquisition of IBX last year. And its on-demand platform already boasts several big tickets clients including Kraft, Novozymes, and Hilti.

TCS now has a dedicated platform-based BPO business division that offers clients several platforms across F&A, procurement, HR, and analytics. In fact, analytics could emerge as a major area for BPaaS solutions given the current low install base of legacy technologies in the space and organizations’ increasing yearning to utilize data for smarter decision making. And the exponential rise in unstructured data from social media, mobile users, and others is creating a space ripe for a BPaaS play.

BPaaS is also having a major impact on the HR function with platform-based HRO offerings from firms such as ADP. In fact, nearly 70 percent of all multi-process HRO contracts signed in 2010 had a platform-based solution, and propelled the adoption of HRO in the mid-market. BPaaS solutions catering exclusively to the mid-market, such as TCS’ iON, are also starting to emerge in other business areas.

On the other hand, BPaaS is not the be-all, end-all silver-bullet as most organizations are not looking for disruptive changes to their existing technology landscape. There is no big driver to a BPaaS model if the basic functionality already exists and if the installed base of such technologies is high. F&A BPO is one market in which BPaaS has not really taken off. Hence, the technology play in F&A BPO is largely around plugging gaps with point solutions or improving efficiencies with workflows.

Yes, swanky looking new BPaaS homes are being constructed in shabby BPO neighborhoods. But we still have to wait and watch how many people come and buy them.

The “Waking Giant” Sequel: How Mid-Market HRO is Emerging as a True Growth Platform | Sherpas in Blue Shirts

Is it wrong to plagiarize yourself? In 2008, Everest Group published a report entitled “Understanding the Waking Giant: The Mid-Market and FAO” highlighting how mid-market companies had turned the corner from point solutions in finance and accounting outsourcing (FAO) to adoption of more robust and integrated multi-process FAO solutions. In turning to HR outsourcing (HRO), the mid-market has traditionally been a big consumer of various point solutions including payroll, 401K administration, contingent labor, etc. But today we see clear evidence that mid-market companies have brought the same approach to their HR function, noticeably increasing their adoption of robust and integrated multi-process HR outsourcing (MPHRO) and Benefits Administration Outsourcing (BAO.) In fact, this client segment is quickly becoming the growth platform for many of the market leading HR service providers.

In our ongoing research into both the HRO and BAO spaces, the share of new contracts signed by mid-market companies (3,000-15,000 employees) continues to grow. In fact, mid-market MPHRO deals represented roughly 61 percent of all the deals inked in 2010. We saw the same upward tick in the BAO market, with 71 percent of all BAO deals involving mid-market clients. As a result, service providers are really taking notice and making moves specifically to target this growing opportunity.

What’s driving the mid-market in this direction? Take your pick of factors:

  1. By consolidating with fewer service providers, companies can reduce the cost of managing their HR processes and gain benefits from increased integration and analytics
  2. Regulatory changes affecting health and welfare (H&W) benefits are driving many companies to seek support in figuring out what needs to be done and how to do it
  3. HR technology isn’t a strategic investment area for most firms. Leveraging technology owned or developed by service providers is seen as a plus for both short- and long-term cost savings and business impact
  4. The choice of mid-market MPHRO and BAO solutions are more attractive now than ever before

Two important delivery model changes have also increased the appeal of MPHRO and BAO for mid-market companies. In both areas, use of global sourcing has gained traction. First, and not surprisingly, this has come at a time when mid-market companies continue to be under immense pressures to further reduce operating costs while simultaneously optimizing the overall effectiveness of their HR operations. Centralization and integration through offshore delivery centers align with such drivers.

Second, many service providers’ increasing focus around building leveraged and repeatable technology-driven components to their HR offerings, be it SaaS, Cloud, or platforms, is proving to be a justifiable investment. In 2010, about 70 percent of all new MPHRO deals signed involved some type of platform solution, and 71 percent of those involved mid-market buyers.

The strategy to focus on mid-market clients is paying off for some service providers. Three of Everest Group’s five MPHRO 2011 Star Performers – ADP, NorthgateArinso, and Infosys – drive significant portions of their MPHRO business from mid-market clients. Further, each of these providers grew their share of the overall MPHRO market in 2009-2010.

Both ADP and Mercer, major players in the MPHRO and BAO markets respectively, have successfully deployed mid-market strategies, although they are very different in nature. In fact, each firm, as we heard during their recent annual analyst events, continue to invest in sales programs, service offerings, and relationship models specifically targeting this growth opportunity. Mercer leveraged its acquisition of IPA to open doors with mid-market clients, and to align its delivery model with the specific needs of this segment. ADP, which has always had significant payroll offering success in the mid-market, has successfully expanded its footprint with some of these clients into the MPHRO space.

To successfully tap into this segment, HR service providers will need to be on top of the rapidly changing mid-market competitive landscape, delivery requirements, technology solutions, and sales engagement models. With all this going on, dare I say the mid-market will prove to be the “Waking Giant” for the evolving MPHRO and BAO markets?

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