Incremental outsourcing is giving way to a bolder, more comprehensive paradigm.
 
By Chris Gattenio
 
 
Are you leaving value on the table as you adopt an outsourcing strategy? Several forces are coming together in the marketplace that are motivating CFOs to look beyond simple cost reduction and productivity gains in an FAO engagement.
 
 The maturation of the FAO industry—and the significant value driven from an expanding scope and broader range of activities—is one key reason business leaders are taking a closer look at their end-to-end business processes. Secondly, with recent global economic instability, companies are increasingly challenging their current business models to consider alternatives to improve performance and flexibility to survive sharp market fluctuations.
 
Historically, most companies have been comfortable gradually easing into FAO, starting with a single transactional process such as accounts payable or accounts receivable. During the last year, however, more outsourcing engagements have moved away from a single focus toward a broader approach that delivers additional value that was typically left behind in previous years. Today, organizations are looking to bring “upstream” processes into scope, and are seeking end-to-end solutions such as procure-to-pay (P2P) and order-to-cash (O2C). Once viewed as touching too many silos, this comprehensive approach is now considered a best practice, due to the level of extended enterprise outcomes.
 
A New Synergy Between FAO Technology, Providers, and Clients
Recent analysis has shown that up to 70 percent of the problems addressed in F&A processes typically occur upstream. In conjunction, the maturation of today’s outsourcing market is challenging this siloed approach to process execution. Companies are becoming much more motivated to work across silos in their own organizations, seeking to address and eliminate root causes of problems. This cooperative spirit is converging with new, more integrated capabilities of seasoned FAO providers, who can offer improved workforce optimization and innovative technology with embedded process modeling, advanced analytics, and granular metrics. Enhanced technology that can “wrap around” a client’s existing system and streamline both upstream and downstream activities not only optimizes the overall value to the client, but also creates a more integrated business posture. Providers have struggled for years to market the value of this kind of outsourcing engagement. As the industry matures in tandem with the expansion of capabilities and advanced technology, leading providers are now able to demonstrate and fully commit to the value of their solution, making both cost rationalization and enterprise-wide value for clients faster and easier. During an economic downturn, it’s imperative for CFOs to be able to quickly move through this cost rationalization stage to upstream processes for faster results and competitive advantage.
 
 
Trends Show Leading Companies Adopting Higher-Value FAO Engagements
Progressive companies appear to be moving away from cost-based “quick fixes” that focus on individual subprocesses. Leaner, more effective end-to-end FAO engagements designed to rapidly deliver real and sustainable value are gaining momentum.
 
O2C and P2P engagements successfully demonstrate the benefits clients can realize when they address these processes on an end-to-end basis. An O2C engagement encompasses the entire revenue cycle, including order entry, billing, and dispute management (compared to just cash application or collections). With an optimized, end-to-end revenue cycle, clients can more rapidly pinpoint and improve working capital and significantly reduce bad debt and profit leakage; these enterprise business benefits deliver multiples of value over and above the labor-based process savings. End-to-end P2P engagements also go beyond single processes such as accounts payable and travel and expense processes. Clients can realize savings in vendor negotiations, sourcing, and compliance activities on top of improved productivity for annual reductions in total spend of up to 15 percent.
 
 
Clients Seek Flexible Engagements With a Trusted Provider
Recent FAO analysts’ reports indicate that the overarching objective for many organizations is to adopt more flexible and “intelligent” outsourcing—with one caveat: The solutions must be backed by a trusted provider. Clients are demanding a strong partnership with a provider who helps support the company’s unique long-term business goals with proven capabilities. Today, the industry and its expanded capabilities in process, technology, and governance have matured enough to be able to deliver on these requirements. To be successful, this kind of relationship must be built on a structure of joint partnership, with clearly outlined goals and accountability. 
 
A CFO, FAO metrics guru and former FAO provider, Chris Gattenio has been an advisor for more than 1,000 CFOs. She is vice president, MBPS asset strategy and F&A program management, IBM Managed Business Process Services.
 
If you have a question for Chris, send it to: chris.gattenio@us.ibm.com