Most companies have either not outsourced or have dismissed BPO as a delivery model for their F&A activities. This can be for a range of reasons, and having been a consultant in shared services and BPO for the last 18 years I have heard all of them. That's not to say BPO is the right thing to do for all organisations, as with everything it depends on circumstances.

Many of you reading this article will have been involved in evaluating the options for your organisation and rejected (or the organisation rejected) the BPO option. Sometimes for very valid business reasons, other times because there were simply higher priority things to focus on or someone senior in the organisation just did not believe it was the right thing to do.

Remaining objective in evaluating any options which require organisational change, disruptions and a degree of risk is always difficult.

Regardless of the reasons why your organisation has not already considered or adopted BPO as a delivery model (or component part of a broader delivery model), it should never be completely discounted. Circumstances change or new senior managers come along, and before you know it outsourcing is on the agenda. Even if you currently preside over a very successful in-house shared services operation, it is always sensible to keep an eye on the alternatives, even if it is only as a benchmark.

Let's look at the main reasons most frequently quoted as the drivers for outsourcing business processes, and dispel some of the most frequently quoted counter arguments for rejecting outsourcing.

The drivers most frequently quoted for BPO include:

• Enabler for process improvement or transformation
• Enabler for increased focus on the higher value activities
  and decision making support
• Lower costs
• Superior flexibility and scalability
• Need for external expertise

Enabler for process improvement or transformation

To be honest, nearly all BPO deals Alsbridge have seen or been involved in are not ‘transformational’. Most companies who have embraced outsourcing have adopted a ‘lift and shift’ model. To be transformational the outsourcing usually needs to be accompanied by a step change in technology. If the reason for outsourcing is to enable transformation then there are service providers out there with transformational capabilities, and it is possible to collaborate with them in deploying new technologies and improved processes.

The most frequently aired argument for rejecting (or putting off) the outsource option relates to this driver. Usually the arguments go.

• we need to fix (or transform) our processes first, otherwise it will fail
  
  
• what is the point of outsourcing our mess, if they do sort it out they (outsourcer) will keep the benefits
  
  
• we will end up paying significantly more for any changes to processes we make after outsourcing

These outcomes are avoidable and certainly have not prevented many companies from successfully outsourcing. Indeed, it is not advisable to outsource something if it is truly broken (i.e. not working) without fixing it as part of the outsourcing process. This can be achieved by using the skills and capabilities of your service provider, however, this is not transformation.

To avoid failure where transformation is the expectation, then the understanding and agreement with your service provider needs to be clear in respect to:

• what outcomes are expected, and these need to be realistic
  
  
• how the desired outcomes will be achieved, e.g. recognising the need where necessary for investment (by you and/or the service provider) in new technology and resources to deliver the changes
  
  
• who will be responsible for delivering the change… this typically falls on both parties, the service provider cannot achieve this without significant input from you.

The agreement also need to be clear how the benefits will be reflected in the pricing, which can involve sharing these with the service provider in order to incentives both parties to achieve the changes.

Enabler for increased focus on the higher value activities and decision making support

The arguments against outsourcing in relation to this typically follow the lines. we should be automating these transactional or rules based activities, not giving them to someone else to carry them out in the same way that we do it.

If your main objective is to re-focus your finance people on 'adding value' then one option is to outsource on a lift and shift basis those activities which are not perceived to 'add value'. If your organisation is not prepared to invest further in technology to automate labour intensive activities then why not? More often than not the service provider can do the transactional activities more productively and if carried out in a low cost location, for less cost.

In the same way as the previous driver for outsourcing, to meet your objective of increased focus on higher value activities will require action and change in your own organisation. You will need to educate and motivate your people to stop doing what they used to do and focus on what matters. Often this will involve letting many of them go and recruiting people with the capability and mind-set for business analysis roles in finance.

Lower Costs

These are usually delivered through greater productivity and efficiency enabled by investment in technology and process transformation, and /or through labour arbitrage.

Increasingly, I have heard commentators and organisations considering outsourcing F&A off-shore argue that lower costs from going off-shore are short term and will soon be eroded away from local inflationary pressures. It is true that in Eastern Europe, South America, India and the far East, costs are and will over time increase relatively to Europe (and North America). There are capacity limits in all these locations. However, if you take India as an example, there are over 50,000 English speaking graduates coming into the employment market every year, clearly supply still outstrips demand and will continue to do so for some years to come.

It is true that costs are increasing due to local capacity constraints in many of the off-shore destinations for BPO, and these also contribute to high rates of attrition. However, those service providers with a truly global service delivery footprint have the flexibility and expertise to expand into other cities and destinations. there are at least another 5-10 years worth of labour arbitrage opportunities for those organisations seeking to reduce the cost of support services.

Superior flexibility and scalability

Increasingly in the last 3 or 4 years as the scale and capabilities of service providers has grown these benefits have become reality. Suitable provisions need to be made in the agreement with the service provider setting out parameters which govern notice period, lead-times and potentially scale related adjustments to pricing, however, with these in place changes in your business can be accommodated within the finance function with far more ease than could ever be achieved internally.

Need for external expertise

As with the previous driver for outsourcing, as the service providers have grown their capabilities the reality is that they are able to guarantee access to the skills and experience which your organisation may struggle to attract and retain.

The argument about losing the knowledge and experience of the business is not a credible argument when considering the processes and activities typically outsourced. More often than not, redundant and superfluous activities are eliminated when processes are outsourced. how often have you heard staff say 'we do it like this because that is how it has always been done'?

The worry and distraction with respect to managing attrition, whether in clerical / transactional roles or in roles requiring scarcer skills, can be avoided.

Increasingly, service providers are developing more specialist and analytical capabilities, often retained in lower cost locations. This can enable access to skills, often at an attractive cost, for ad-hoc pieces of work on a demand basis. For example, in clearing those long unreconciled control accounts, or in more detailed analysis of those debtors or defaulting customers, often with remarkable results.

Conclusions

You may not yet have seriously considered outsourcing as part of your operational model in delivering finance within your organisation, or you may have already discounted it. The drivers most often quoted by those organisations who have outsourced parts of finance are the same as those drivers most finance managers face in meeting the demands of the business, e.g. increased efficiency and productivity, increased focus on business analysis and decision support, flexibility and responsiveness to change, and doing more for less cost. You may already feel that you have already responded to these drivers and have an effective operating model without outsourcing.

Many of the arguments made against outsourcing as a solution for addressing these drivers either have little basis in reality and or have diminished as the BPO service providers have become more established. They are also not borne out by the experience of those many organisations that have already successfully outsourced.

In today's rapidly changing business and economic environment, even where your existing operations are considered efficient and effective, it would be unwise not to keep an eye on the outsourcing option as a potential complementary solution and model to your finance operations or shared services.

You may be considering where to take your shared services or finance operations model next. Many of the clients we have worked with have been round the cycle of considering outsourcing many times, it only takes a shock to the business or change in senior management for outsourcing to suddenly become the right answer. It would be prudent to always have it in your sights, have a good understanding of the costs, benefits and impacts. so that you are ready to respond if necessary.