Scenarios to help you decide if your organization should clean F&A house or hire a provider to do it for you.

by Bob Cecil

Imagine your environment has no shared services or best practices, you have company veterans rooted in inefficient tradition, and your work groups are at odds with one another. In short, your environment is decentralized, your workforce fractionalized, and your business compromised. What do you do with this mess? Should you outsource it immediately or fix it first and consider outsourcing later? There are sound bites galore on both positions. On the fix-it side, for example, some insist that a company be at least 70 percent standardized lest it export problems to a service provider or give away too much of the savings. In the outsource-it camp, some warn that if you re-engineer first, youll have to double-investonce for your internal fix and again, possibly, for a new finance and accounting outsourcing (FAO) structure. However, none of these positions takes a holistic view based on todays economic realities and risk factors. The truth is, thanks to the leverage of technology and labor arbitrage, it is no longer absolutely necessary to re-engineer a business process before outsourcing it. Instead, you can streamline it, then move it offshore to a low-cost hub, resulting in immediate savings and a collaborative fix over time. In other words, todays FAO market offers lots of options, and there are no simple rules of thumb on outsourcing a mess versus fixing it first. In this objectivitydemanding Sarbanes-Oxley era, a better course of action is to base your decision on a fair, fact-based assessmentone that considers the cost, time, and probability to achieve your performance targets within each scenario.

COST AND TIME

Many in-house efforts to improve processes are abandoned midstream, resulting in lost time, money, and focus on strategic initiatives. Examine your companys track record for making changes. How many false starts did you have? How long did it take to complete a project? And did you actually achieve the goal? Delays obviously translate into higher cost and lost productivity. On the flip side, choosing FAO certainly can improve technological capability and process management, but keep in mind those savings may be offset by onetime transition costs, service provider margins, and ongoing governance costs. In addition, consider the knowledge required for the processes you want to outsource. If its in someones head instead of on paper, you may need to build in extra time for work-shadowing to allow for effective knowledge transfer to the service provider. As an alternative, you could mitigate that time and cost by transferring the knowledge holders themselves to the service provider.

PROBABILITY

Consider which scenario is the best fit for your companys culture. In some organizations, the culture doesnt allow for an internal fix because senior management simply will not invest in re-engineering a backoffice process. In others, fixing a mess can fuel political problems: Senior business unit managers may refuse to take on an internal transformation project for fear of losing control in the field. As for FAO, a culture often requires a burning platform in order for outsourcing to be considered. Otherwise, garnering company- wide support for outsourcing in the mere spirit of continuous improvement can be an uphill climb. If you do decide to outsource a mess before fixing it, consider building flexibility into your FAO contract that protects you in case some business units dont get on board. Also consider how much baseline financial information your company is willing to share with a service provider. FAO is like a joint venture, and the more internal costs you can reveal, the better your relationship will be.

CONCLUSION

While some service providers prefer an already fixed environment, as it makes for a smoother transition, others wholeheartedly want your mess, seeing it as an opportunity to drive greater mutual valuein the form of both process improvement and cost reduction. This reinforces my point: There are no absolute answers to the dilemma of outsourcing versus fixing it first. The most viable answer is to take a hard, honest look at the improvements you can achieve with respect to cost, time, and probability, and decide which scenario is best for your organization