Your company doesn’t have money to burn. By outsourcing finance & accounting and procurement together, you can fan the flames of powerful synergies that will go straight to the bottom line—while helping to improve operations.

by Lisa Maio Ross

As we evaluate market opportunities in 2008, there is tremendous synergy in outsourcing finance & accounting and procurement. Both business processes directly impact a company’s bottom line. Both operate in high-volume processing environments supported by technology backbones driven by process and industry expertise, and the management of one department affects the other via finance. Both are plagued by cost overruns, ineffective processes, and inefficient analytical capabilities; yet, both are struggling to improve operations with lower expenses.

Outsourcing Together
Companies that consider outsourcing finance functions typically go through a standard process. They assess their current state (including costs and process improvements), come up with a more desirable “future state” (post-outsourcing), select a supplier, and negotiate long-term arrangements. They develop processes for transition, governance, communication, and relationship management. More importantly, they construe measures of performance to monitor the achievement of quantitative metrics over time. The finance sourcing life cycle—from start to contract signing—can take from four months at a minimum up to a year-and-a-half or even longer. For multinational corporations, we see the timeline toward the high end, an expensive proposition.

Given the time, effort, and resources that companies invest to evaluate the FAO option, wouldn’t it make sense for them to include procurement outsourcing as part of their company-wide operational due diligence? After all, much of the procurement process is part-and-parcel of many finance functions. There are several global outsourcing service providers that offer full-scale procurement services in addition to FAO. There also are niche outsourcers that can manage the entire procurement process, including consulting services around the supply chain globally. Furthermore, many companies worldwide have taken this dual plunge already, including Dun & Bradstreet, Kodak, and a host of others.

Why Not?
Multi-tower contracts (those involving two or more business processes outsourced at the same time, like FAO and procurement) will be less common in 2008 versus in previous years. Companies appear to be more risk-averse than in the past due to a challenging economic climate, so with such contracts being more time-consuming to source and difficult to manage, expect standalone engagements. A methodical approach to outsourcing better assures that processes are transitioned in line with expectations, cost and savings targets are aptly monitored and achieved, and human resources are in line on both the supplier and client sides.

Converging Markets
The value-add of FAO coupled with procurement outsourcing cannot be ignored, despite the challenges inherent in multi-tower deals. As the FAO market continues to mature, the “business case” for outsourcing both business processes in tandem becomes increasingly compelling. The procure-to-pay (P2P) cycle is linked closely to the finance function via the purchasing/requisition process. As a company engages in FAO via accounts payable, as an example, the natural evolution of these services should be upstream to include additional transactional components, like those in P2P. Outsourcing this procurement function in addition to FAO would enable greater control of the purchasing environment and a fuller view of operational spend and its overall financial impact.

We expect to see a greater number of companies and governments worldwide evaluating the outsourcing approach, so the mantra of outsourcing as the “better/cheaper/faster” operational alternative applies as much to finance processes as it does to procurement. A company’s choice to combine the benefits of FAO with procurement outsourcing would enable process efficiencies and other cost-cutting measures that would drive down expenses and positively affect customer satisfaction. Moreover, business processes like financial reporting, regulatory compliance, risk mitigation, spend management, and financial reporting could run parallel company wide. As outsourcing buyers move up the education curve, they will assess bundling supplier sourcing and management components into the FAO/procurement outsourcing equation, as well.

As organizations consider outsourcing procurement-related functions in conjunction with FAO, more often than not they will engage the transactional components first. Similarly, those entering into procurement arrangements will include multiple levels of FAO activity in their contracts. Over time, we expect a fuller convergence of these business process areas within new outsourcing engagements and also other types of outsourcing contract renewals with procurement and related FAO function add-ons.

The procurement outsourcing category holds tremendous potential for FAO service providers to educate prospective customers about how their process improvements and technology enhancements could help customers manage their overall spend more effectively. We expect suppliers to seek sole-source engagements, with activity driven primarily by the global, full-scale suppliers already offering all types of outsourcing services. We see niche procurement outsourcers also competing for major engagements, giving the traditional suppliers a good run for their money. We also expect more of a movement by FAO suppliers to team with procurement industry specialists and provide complementary offerings.

Lastly, we expect traditional outsourcing competitors to be forced to “team” with each other at customers’ requests, as prospects consider them to provide FAO in addition to procurement outsourcing and other types of services that might already be in place, hence creating unusual bedfellows.

Overall, FAO Research expects prospective outsourcing buyers to choose service provider partners that not only best match their current requirements but also help bring them to the “next level”—a future state with greater efficiency, cost effectiveness, and performance improvements globally.