How to boost FAO success by tapping into an underutilized resource.

by Katrina Menzigian

They say a team is only as strong as its weakest link. In some ways, this old saying accurately captures how we should think about the value proposition presented by the entire FAO solution, both in-scope and retained. Awareness of how the retained organization impacts the success of the overall FAO strategy remains low. Most buyers of FAO services focus more heavily on what’s sent outside their own four walls than what stays with their reinvented finance department. In doing so, they leave key drivers of FAO value on the table. This article takes a close look at how companies that adopt FAO can drive more value from an often underutilized resource.

Benefits of Doing it Right
In meeting the broad objectives described above, the retained organization can enable tangible value in a number of key areas:
• Strategy
• Efficiency
• Effectiveness
• Organizational alignment
• Governance
• Cost savings
Companies often use these value drivers in measuring the success of a retained organization, as they are closely aligned with many of the fundamental objectives underpinning the entire FAO strategy.

Strategy: The retained organization has strategic relevance in two areas. First, by strategically including design of the retained organization in the overall FAO solution design, companies stand a much better chance of achieving alignment between the “in-scope” and “out-of-scope” components of their F&A operations. Secondly, a retained organization with a clear mandate and understanding of its new role in the broader organization is better able to act as a strategic business partner in the overall management of the company.

Efficiency and effectiveness: As the daily transactional aspects of the organization transition to the outsourcing provider, the remaining operational staff shifts its focus from ensuring the accuracy of daily operations to the efficiency and effectiveness of the overall process. This shift in focus allows the new F&A organization achieve greater focus and visibility into how financial management can impact overall business objectives. In this way, the new F&A organization can also act as an enabler of major initiatives because it can now act as a central point for critical decision-making information, and as a key gateway into better understanding the financial implications and ramifications of such initiatives.

Organizational alignment: A retained F&A organization faces the challenge of reinventing itself in order to fulfill a new role within the broader company organization. Often, this new role requires skill sets and capabilities that were either not required by or were underdeveloped in the previous F&A organization. It therefore becomes necessary to plan and execute a heavy dose of training and change management designed to ensure that the right skill sets are available to support these new roles and responsibilities.

Outsourcing deals are rarely static and over time may evolve along process scope, geographic scope, and strategic objectives. These types of changes create the need for practices designed to assess the ongoing alignment between the retained organization and the outsourced operation.

Governance: As it migrates from an operational to a strategic orientation, the retained F&A organization must have the requisite skills and capabilities to productively contribute to the governance program as a key stakeholder and not a mere participant.

Cost savings: The nature of cost savings associated with a retained organization is more about cost avoidance than cost take-out. More specifically, Everest has found that as FAO sourcing models mature and the transition settles in, a retained organization can sometimes lose sight of its mandate and resume some of its former “arms and legs,” in effect regenerating itself. In these cases, the initial FAO business case can erode and lead to misalignment between the initial savings targets and actual costs.

The Current Environment
In our investigation of current practices involving the retained organization, two main themes emerged around why they are not meeting or delivering their full potential to their organizations.

Focus and Investment
The need for early intervention: The retained organization as part of the FAO solution design. Everest has found that early focus on the retained organization correlates with better alignment between the retained and outsourced components of the new F&A strategy.

Companies achieve much of this alignment as the “in-scope” components and the retained components organization ideally evolve in
parallel beginning with the “value creation” and scoping phase and continuing through the transition phase. This approach ensures that the retained organization eventually in place benefits from understanding the strategy, rationale, and process that led to the creation of the new F&A operating model (see Exhibit 1).

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Investments in talent. Optimizing the retained organization will often involve incremental investments in training, change management, and hiring. From the surface, these investments can appear as a net-new cost detracting from the overall FAO business case. Everest has found that the retained finance organization is often not equipped with the necessary funding and investment needed to help staff fulfill their new responsibilities. This lack of competencies, in turn, can actually inhibit the full realization of the overall FAO business case.

Achieving Alignment
Identifying what’s in scope, what’s not. Understanding which services the new internal F&A organization will deliver versus those that the outsourced operations will deliver is key. While this may seem a straightforward concept, its execution is often mired in ambiguity. This ambiguity comes from two sources: Genuine uncertainty of the terms and structure of new roles and responsibilities, and intentional side-stepping of a weak governance model or retained organization.

Becoming the voice of the customer. For those companies that previously maintained a shared service center, a unique alignment challenge can develop in the post-transition phase. In this scenario, what had previously been an internal shared service center may now be part of an outsourced supplier delivery model. This migration in effect converts the retained organization into the “voice of the customer,” requiring a paradigm shift for those now in this role.
Strong capabilities in advocacy, end-to-end process management, reporting, and communication, will enable the retained organization to drive value by ensuring that it meets its organizational requirements. This type of alignment is often lacking or weak in early-stage FAO engagements and typically does not smooth out until the company gains broader FAO experience.

Best Practices
As market awareness of the role and implications of the retained organization continues to broaden and deepen, a number of best practices have emerged.

1. Attention to the design and vision for the F&A retained organization should occur early in the solution design process and be monitored on an ongoing basis throughout the FAO engagement lifecycle. Buyers of FAO services should view their overall F&A strategy as the sum of all its parts, including the future positioning and operations of the retained organization, as well as how that body will integrate with the remaining FAO model components (governance, COE, SDC).

2. Maximize results and create alignment by articulating common objectives for the retained and outsourced components of the FAO strategy. Alignment between the retained components and the rest of the FAO model occurs in several areas including the organizational structure of the finance model, alignment of technology environments and skill sets between the retained organization and the outsourcing service delivery centers, the role and positioning of the retained F&A organization (operationally or strategically oriented?), and the reengineered business processes and workflows.
It is worth noting that not only is the achievement of alignment a best practice, but having processes in place to sustain and enhance that alignment throughout the course of the engagement is a best practice in and of itself.

3. View the retained organization as an investment and not a cost center. For many companies, the concept of “outsourcing” is synonymous with “cost savings.” While cost savings is a key objective of outsourcing and a fundamental driver, the broader value proposition around FAO is quickly expanding beyond cost savings to include process optimization that supports strategic corporate requirements. In support of these more complex objectives, the role of the retained organization must expand, too. In developing a retained organization capable of supporting not only operational requirements but also strategic decision-making, companies will need to invest time and resources in ensuring the right team is in place.

4. Position the retained organization as a career growth opportunity. The manner in which a company positions and nurtures a retained F&A organization will strengthen the company’s ability to retain and attract F&A talent. The adoption of an FAO strategy does not eliminate the need to build F&A talent—it merely shifts the focus and emphasis. In reality, given that the roles remaining with the retained organization often require higher levels of expertise and more specialized skills (e.g., supplier management, contract negotiation, and shared services interaction), the role of talent management in FAO takes on greater importance. In a job market where finance departments across the world continue to struggle to find and retain experienced and trained F&A professionals, companies will need to strengthen their ability to competitively attract ambitious F&A talent.