Minding the bottom line should go hand in hand with accelerating revenue growth.

by Stewart Clements

Restoring growth continues to gain prominence as one of the top concerns among companies around the world. However, simply boosting the top line is far from a guarantee of business success. Attention to costs is just as important as bringing in new business so that they don’t become an inhibitor to growth. As a company grows, it’s critical to, at minimum, hold selling, general, and administrative (SG&A) costs steady—because little good comes from a doubling of revenue if it’s accompanied by a doubling of indirect costs.

For example, if a company acquires another organization but has no global standard operating model, it often must assume substantial incremental costs to integrate the acquired entity so that normal operations and financial reporting can continue. However, in doing so, the company finds that a portion of revenue gained through the acquisition is offset by the integration costs, compromising the growth potential that spurred the deal in the first place.

Achieving profitable growth is a challenge with which many companies struggle. CFOs, in particular, often are bedeviled by the dual pressures of supporting the push for top-line improvement, while, at the same time, maintaining a short leash on SG&A costs. Yet a number of forward-thinking finance executives are finding solace in a new breed of outsourcing relationship that not only addresses the cost issue but also equips the company with new capabilities that dramatically improve an organization’s ability to grow. This new outsourcing relationship is characterized by a number of key elements.

• It provides a standard set of best-practice processes and technologies that support quick and easy integration of acquired entities. And because F&A is the business for the outsource provider, these processes and technologies must be state-of-the-art for the provider to be competitive.
• It reduces SG&A costs by turning fixed costs into variable costs that are typically lower because they are spread across the outsourcing provider’s client base and, secondly, because the provider has automated standard F&A transactions, the cost per transaction is reduced. This is especially significant due to the lack of progress companies have made in automating their own transaction processing.
• Because of its standardized, integrated processes and technologies, an outsourced environment can more easily provide a comprehensive picture of a company’s operations—especially the profitability of specific customers and markets. In essence, the company benefits from one integrated system that can be difficult for a company to achieve in-house due to often-fragmented operations.
• An outsourced F&A function typically is more effective and efficient in customer billing and collecting delinquent payments. Companies that have outsourced F&A have found that the enhanced capabilities enable them to forge tighter electronic links with their customers and suppliers, resulting in much less manual intervention and greater accuracy in transactions.

There are a number of examples of how F&A outsourcing is playing a key role in a company’s pursuit of profitable growth. Exel PLC is one of the best. A global leader in supply chain management with a critical need for effective cost management, the company has a history of growth through mergers and acquisitions, resulting in an inefficient, costly, and fragmented finance function in multiple locations. Exel’s management concluded that the best way to improve its finance function would be to enter into a transformational outsourcing arrangement to rationalize Exel’s network of administration centers in the U.K. and implement a single, enterprise solution.

Exel’s outsourcing program has now operated for almost 10 years and continues to deliver value, while the company has generated revenues three times as large as they were at the start of the outsourcing arrangement. As Exel illustrates, F&A outsourcing can play an important role in effectively balancing business expansion and operating costs. By teaming with a qualified outsourcing provider, a company can transform its F&A function into a platform for growth and innovation and a driver for continually improving business performance.

In summary, the days of growth at all costs are long gone, replaced by a mindset that values the bottom line as much as the top. CFOs who enable their companies to effectively execute bold new strategies can help them become and remain market leaders.