This month, she explains how to strike a balance between outsourcing and insourcing financial processes.

by Chris Gattenio

Q. How do I decide between insourcing and outsourcing my F&A processes?

A: Most organizations are seeking to increase their competitiveness by targeting their focus on strategic F&A initiatives while simultaneously driving effectiveness and improvement in daily operations. By engaging either shared-services programs or outsourcing solutions, these companies can optimize administrative and resource-intensive business fundamentals and reprioritize attention toward strategic and transformative endeavors, thereby becoming a more flexible, efficient organization.

During the past 15 years, shared services have become almost institutionalized and are now seen as an effective delivery model for achieving end-state objectives. However, the market is beginning to see a shift toward increasing process and technology improvements on the very goals shared services were established to address. So what’s next?

Today’s market is beginning to reflect the maturity of shared services. Once perceived as risky, they are now readily embraced by finance organizations. Looking beyond what has been accomplished through shared services, leading-edge companies recognize that the next step change in operational cost savings will come from outsourcing.

Many decision factors need to be considered. Beyond the financial case, evaluate nonfinancial factors to assess an organization’s ability to implement an F&A
solution, respond to business changes, and align with overall business strategies. These factors include:
• Total cost savings;
• Speed to benefits;
• Availability/capacity of resources;
• Risk of implementation and probability of success;
• Ability to adapt quickly to business changes; and
• Alignment with corporate strategy.

The differences revolve around ownership, and the “build or buy” decision demands an evaluation of requirements and priorities.

Unquestionably, shared services have been instrumental in achieving cost savings and process improvements across F&A. Today, employing internal shared services makes sense when:
• Highly competitive business or industry/statutory requirements would preclude employing a third-party provider;
• Business partners require very specific services or response times that would be difficult to fulfill via outsourced services;
• High-performing internal capabilities already exist at a competitive cost; and
• Company culture insists on building internal capabilities.

That said, many companies have faced extensive challenges in implementing shared services internally, often electing to outsource their F&A operations before their captive is even up and running due to unexpected costs and lack of expertise. Some challenges include:
• Establishing a clear separation of roles and responsibilities between shared services and business unit support staff;
• Identifying skilled resources, either internally or externally, to operate the shared-services organization;
• The continued focus on achieving the appropriate balance to deliver best-in-class service in a cost-effective manner.

Whether an organization has already attempted shared services or is first considering engaging a third-party provider, opting for outsourcing makes more sense when:
• Current operating costs are too high, even after efforts to improve performance;
• It is difficult to maintain staff capable of achieving the requisite service levels;
• Technology is aging and enhanced functionality can be leveraged as part of an outsourcing solution;
• Cultural barriers to change are stalling migration to internally managed SSC;
• Facing rapidly changing external requirements/standards that are common among most organizations.

Despite the substantial improvements and cost savings offered, outsourcing support functions faces challenges such as:
• Potentially less control/visibility over daily transactions;
• Providing quality customer service to business partners while retaining business-specific knowledge and sensitivities; and
• Recognition of local requirements and priorities.

Overall, the F&A market is beginning to reflect an overarching theme that is consistent across industries and organizations of different sizes. A shared-services approach, once considered to be the panacea for all finance challenges, is now viewed as a commonly used element in the much broader finance agenda.

Shared services no longer offer a distinct strategic advantage; they are a tactical necessity. But experience has taught us that the benefits can be elusive.
Although the once-common myths about shared services have been debunked, new ones have emerged about outsourcing. These are disappearing, too, as finance organizations continue to realize the anticipated (and unanticipated) benefits from outsourcing.

The staid, unchanging finance organizations of the 20th century have evolved into the rapidly changing, flexible finance organization of today. New technology offerings, new points of view, and new rules and regulations must be analyzed and supported. Shared services and outsourcing are both enablers of change, and they will play an integral role in finance’s success.