But survey reveals problems in the rate of success. Internal resistance and speed of implementation can affect how effectively FAO addresses clients' needs.

by Peggy Cope

Much has been written about the outsourcing efforts of corporate giants such as IBM, General Electric, and the like. Much less has been said regarding companies smaller than the Fortune 100 behemoths, but according to a recent study, there may be reason to pay attention to this group.

The study, conducted by Outsource Partners International (OPI) and Alix Partners , confirmed what some suspected all along—that the mid-market is a vibrant segment where many deals have been cut and where many additional ones will be signed in the near future.

“Midsized companies confirmed a lot of activity in this area,” said Neal Ganguli, director, Alix Partners. Among the responding companies, 49 to 50 percent had already initiated outsourcing efforts within the past two to five years, mostly within the past three. Another 25 percent plan to do so within the next 48 months. All told, three-quarters of respondents have outsourced or plan to do so soon.

“This confirmed that it’s not just a big-company adoption story any more,” said Ganguli.

According to OPI, which serves a client base of small to mid-market buyers, 80 to 90 percent of clients report annual revenues between $500 million and $10 billion. The companies represent industries ranging from automotive manufacturers to producers of consumer goods and retailers. OPI and Alix set out to answer the basic question: do these companies have the same urge to outsource their financial and administrative functions as their more sizable brethren? And are they reporting similar success rates?

In all, some 800 corporations were contacted, resulting in 40 responses, of which 35 were used in the primary analysis. Of the survey base, 90 percent had less than $5 billion in sales, said OPI director Keith Alphonso. About 75 percent had $2 to $5 billion in annual revenues.

Part of the survey asked midsized buyers how they were engaging in outsourcing and the results they were getting. HR and IT are still the most frequently outsourced functions for these companies (53 percent and 56 percent, respectively), followed by F&A, which weighed in at 34 percent. The preferred outsourcing models for all functions were shared-services centers (40 percent on- or near-shore, 10 percent offshore) followed by third-party (26 percent on- or near-shore, seven percent offshore), and a hybrid of the two approaches (14 on- or near-, three percent offshore).

Somewhat alarming is the success rate survey participants reported—about 38 percent rated their outsourcing efforts as less than effective. “When big companies do it,” said Alphonso, “the failure rate is lower. A number of things lead to this failure, but the question is how to overcome the challenges?”

Survey results showed the top challenges are: employees protecting their turf (42 percent); securing management buy-in (25 percent); and obtaining resources (13 percent). “The first implication is, before outsourcing, look within,” said Alphonso. “Is management committed, have they dedicated the time, money, and resources, has the right team been identified, and have you done your due diligence? If you just jump into it, there’s a likelihood
of failure.”

Another key factor the survey identified was how quickly an organization implements FAO once the decision to outsource is made. According to Alphonso, “There’s a strong correlation between time to implement and time to savings and amount of savings.” Read: the faster you go live, the sooner you’ll start saving money and reaping better productivity. But speed isn’t everything. Even more than with other functions such as HR and IT, outsourcing F&A requires making the right choices, something a company shouldn’t rush.

Indeed, making the right vendor choice was among the most important actions in effective outsourcing, and level of expertise was the highest-ranking criterion in making that selection (28 percent). Reputation and brand accounted for 20 percent of vendor choices, followed by low cost at 16 percent.

The bottom line? Midsized companies are definitely diving into the outsourcing pool, but they need to make sure they do their homework and ramp up their efforts quickly and efficiently to realize the efficiencies and savings to which they aspire.