Outsourcing Finance And Accounting Functions Information Technology Essay
Even after investing heavily in ERP, many CFOs have felt that they are not left with any choice than to continue with their programs of simplifying and standardizing business processes; but there remains much to do.
Also most of them now wish to get relief from this laborious work so that they free up time from the routine daily obligation of transaction processing and book-keeping. Systems Spaghetti the jargon refers to the problem created by the voluminous size of transactions and increasing magnitude of businesses along with the explosive growth of technology.
The existing problem can be resolved only by simplifying and streamlining unnecessarily complex business processes, systems, and structures. Organization if they take it up on their own will require to bear additional cost burden, instead they can think in the direction to fragment the finance function, with transaction processing to get operated remotely in shared services or possibly outsourced. Boosted through these two approaches, the role of the CFO is changing from scorekeeper to hardcore strategist. The outsourcings of these functions have lead the functions of Finance, Accounting, Corporate Strategy, and Economics, all converged as never before.
The present paper will elaborate the idea why not only large but even the small and midsize companies need to take their finance functions outsourced and how they can get the maximum benefit out of it.
The present global financial crisis all across the globe has accelerated the need for all the businesses whether large, medium or small to focus on the issues related to the cost saving/cost-cutting and now the cost optimization. For this they are ready to take any strong decisions. Especially in developed countries the business houses that were till now outsourcing only few low risk routine operations, outsourced offshore, are now intended to even looking forward for considering non-conventional, time consuming and traditionally laborious jobs also to be outsourced. It includes Finance and Accounting services outsourced like accounts payable, account receivable, and general bookkeeping services.
The small businesses perceive the value beyond cost savings in large corporations due to higher-value F&A outsourcing, they are considering outsourcing higher-value accounting projects like process innovation in accounting and finance, real-time accounting integration, budgeting and forecasting.
Some small businesses are taking into consideration outsourcing their entire accounting and financial operations to outsource vendors. As the confidence is increased in the service providers for accounting outsourcing skills, availability of latest and appropriate tools and technologies, and accounting process standardization are making an entire paradigm shift for the small businesses on outsourcing their higher-value accounting projects.
Even a study conducted of CFOs of midsize companies (Sales of $20-$500 million) reveals that earlier most of the time of CFOs was allocated in the scorekeeping of financial data but after outsourcing these processes they can deliberate time to various strategic areas which ultimately will creates value for their firm.
Over 50% of a CFO's usually spent their time in managing the department and performing oversight on processing activities for more of the functions that are traditionally labor intensive. The continued constrain of cost cutting and efficiency enhancement in the F&A departments is driving industry to find ways to take advantage of outsourcing these functions.
With the help of outsourcing these functions it can be ensured for more than 25% time of CFOs can be utilized for strategic initiatives. This can be achieved in a matter of weeks and, more importantly, without re-engineering current processes. In addition the organizations have not to lose control over their ERP systems.
Despite the growing attractions of outsourcing, finance remains a function that executives handle with care. There is far greater interest in outsourcing low-risk, routine tasks than the more analytical, value added ones. ‘If you have a high-volume, repetitive transaction, it is required to leverage economies of scale and it works well.
Consider the results shown in Figure 1.1 of a survey in which more than two hundred senior finance executives were asked which processes they were already outsourcing and which ones they intend to outsource in the future.
The first outsourcing runners are typically ‘commodity’ processes, such as payroll. Such processes require limited company knowledge and do not add competitive advantage. Some pioneers are moving beyond basic service provision to include performance reporting and business analytics. Other companies plan to broaden their programs down the road as they gain experience. One Automobile company, for example, intends to expand its outsourcing program from accounts payable and receivable to general accounting and treasury. Companies tend to retain in-house finance policy formulation and management judgment.
Figure 1.1 What companies outsource now and plan to outsource in the future
Recently, the finance function has undergone major changes in response to two distinct, but converging forces:
Full Disclosure and Transparency: finance functions were never so under pressure to look for drastic changes as since ages their adherence to proper accounting principles and disciplines is expected from the users. Well communicating to stakeholders the economic value of the business is still important, but it is equally important now a day to convey how this value is changing periodically and why? Finance functions are not just answerable to the internal stakeholders but also liable to satisfy fully the external investors and other stakeholders with full conviction.
Modern Technological Advancements: Even after investing heavily in ERP, many CFOs have felt that they are not left with any choice than to continue with their programs of simplifying and standardizing business processes; but there remains much to do. Also most of them now wish to get relief from this laborious work so that they free up time from the routine daily obligation of transaction processing and book-keeping.
Systems Spaghetti the jargon refers to the problem created by the voluminous size of transactions and increasing magnitude of businesses along with the explosive growth of technology. The existing problem can be resolved only by simplifying and streamlining unnecessarily complex business processes, systems, and structures. Organization if they take it up on their own will require to bear additional cost burden, instead they can think in the direction to fragment the finance function, with transaction processing to get operated remotely in shared services or possibly outsourced.
Boosted through these two approaches, the role of the CFO is changing from scorekeeper to hardcore strategist. The outsourcings of these functions have lead the functions of Finance, Accounting, Corporate Strategy, and Economics, all converged as never before.
The outsourcing of these functions have lead Finance, accounting, corporate strategy, and economics all converged as never before. As Figure 1.2 demonstrates,
The pace of the finance functions is accelerated influentially as the role of today’s CFOs is changed miraculously. As described in the above Figure the finance functions of the 1980s is portrayed as a relatively fat pyramid, emphasizing transaction processing and lightly promoting decision support. The same if leveraged through ERP systems in the 1990s, when finance became more compact, with a leaner transaction processing operation and greater focus on performance management. By the late 1990s, when the Internet made its mark, the CFO became the center of a web of relationships managing the value of the extended enterprise.
By fragmenting the total finance function with transaction processing is now open for either to be operated remotely in shared services or possibly outsourced, though the decision making was embedded still in business units. The CFO’s ability to maintain the integrity of processes and systems is only going to be the tool for success of these more fragmented models.
The outsourcing of these processes can be done through Effective shared service centers (SSCs). These SSCs are maintaining a reasonable status but also to constantly innovate in the ways of their working and transform process delivery regularly. They need to show a strong corporate commitment for investing in leading-edge solutions. Various researches and interviews have influenced to conclude that the decision to enter into outsourcing arrangements rather than adopting the in-house shared service option is motivated because of the following factors:
Growth: Growing in size and spectrum the business instead spending time and energy on establishing the new setups the potential players are looking for acquisitions/joint ventures, and are concerned about efficiently absorbing acquisitions
Market Position: Due to the increased pressures on finance processes the accountability of CFOs has become more stringent that needs strict controls and lucidity. This function is also a vital point to be looked by the outside world as the parameter of the organizations reputation. This enhanced responsibility of CFOs can be shared by partnering and out sourcing so to concentrate on the strategic action more as compare to transaction processing through Shared Services Centers.
Economy of Scale: An economy of scale has always been an advantage for the large size business organizations but due to present financial conditions. Even large organizations also feeling pressure due to increasing costs and now looking for improving their operating performance. By outsourcing not only large but small- and medium-sized businesses can have an access to economies of scale by subletting large transaction volumes and functions with above average processing cost the organization now can look at the core functions and quantify their growth charts.
Exploring New Geographic locations: as organization do look for exploring new and productive business opportunities in different geographic reasons to cut on costs but without compromising on skills part.
Cost Effectiveness and Efficiency enhancement: Business operations are diversified into various activities now a day and require perfection in all areas. To bring cost effectiveness along with enhancing efficiency it is essential that multiple tasks can be operated with independent support organizations. There way the systems are also being closely scrutinized for cost effectiveness
Extending Capability: obsolescence of processes/systems used traditionally need to be changed are alleviate as concerned over previous failures to extend new capabilities.
Looking at the call of the day some change is already evident in the corporate sector but lot more is yet to come on the way. The outsourcing of various functions have created an enormous presence in today’s market and given a retrospective growth to BPO industry. Those who are associated with this field are of the favorable opinion and they look for these trends of the existing BPO Industry as under:
• Create flexible business environment … The modern businesses cannot be run in a conventional way and should wait till the market responds and they achieve the organic growth rather Companies now look for the quick actions to be taken for the growth and diversity, therefore to optimize the available resources it is always better to sublet the non core activities for outsourcing and concentrate on the growth in the core activities of the business. Also in the short period of time they would like to take advantage through absorbing new acquisitions, handle disposals, and manage corporate restructurings.
• Expansion in scope … to bring the economies of scale more countries and business units are brought into the fold. More processes are included, such as finance, Supply and Procurement, IT, human resource management, and customer relationship management (CRM).
• Economies of Scale … these BPOs are simultaneously serving multiple clients to achieve economies of scale. Not only this by serving to the similar kind of industry and processes they have developed the expertise.
• System Automation … technology support has supported the functions to achieve better performance with less human intervention. This has resulted in a greater speed of working and brings the reality to nearly perfection.
• Reduce investments and operating costs … In today’s fast moving world the technological advancements have provided the low cost solutions to all types of process transactions. Locations and geographic boundaries do not matter due to networking solutions. This has led the entrepreneurs to become partner with suppliers, customers, and competitors and also for sharing non-strategic support services.
On the other hand the outsourcing solution providers invest in moving ahead towards the next-generation; high-performance technologies for liberating their clients from transmitting funds into spur innovation and create a competitive advantage.
Considering all these growing trends and the quantifiable qualitative advantages there is no doubt left that the future of outsourcing especially Finance & Accounting functions is having a great future. For outsourcing the functions of finance and accounting now the organizations have started thinking assertively and trying to leave behind the conventional psyche. Size of the business does not matter also the geographical boundaries have do not left any inhabitation. Only the management has to take this crucial decision to not only be a part of the race rather marching ahead of the time and be the leader. The journey has just began the destination is far ahead.
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