Finance to Go

Call it a sign of the times. In late 2003, GlaxoSmithKline (GSK), the £20 billion ($35 billion) U.K.-based pharmaceuticals company, began a project to uproot its U.K. financial shared services centre and move it to India. In August this year, it agreed to hand over the running of the offshore operations — including processes such as accounts payable, inter-company and financial reporting, payroll, and travel expenses — to Genpact, GE's business process outsourcing (BPO) unit. "The decision was taken after a full review. We decided that these services could be provided at a lower cost, while maintaining our current service standards," says David Mawdsley, a GSK spokesman.

What was a trickle of outsourcing deals last year (see "Outward bound," CFO Europe, October 2004) is becoming a stream. Last month, for example, another heavyweight — Anglo-Dutch consumer goods firm Unilever — said it was looking at outsourcing a cluster of finance, HR and IT processes, identifying IBM and Accenture as potential service providers. According to Gartner, the technology research firm, European companies have so far signed around 70 finance and accounting (F&A) deals of various sizes and durations, with a typical value of between €40 million and €100 million ($34 million and $85 million). And they're set to increase: Gartner predicts that by the end of 2006, 12 new major deals will be signed in the region.

The reason for the growth is compliance, says Cathy Tornbohm, London-based research director at Gartner. As firms look to "achieve global compliance with their own methodologies and to have that documented better, services such as the management of the general ledger and inter-company reporting will increasingly be outsourced," she claims. And as providers demonstrate longer track records in managing third parties' affairs, "comfort levels will rise" among clients, adds Bob Cecil, global F&A practice leader at EquaTerra, an outsourcing advisory firm in Houston.

Over to You
For many finance chiefs, however, the idea of relinquishing control of even low-level finance processes is one they struggle with — mostly because of the difficulty of achieving suitable management oversight and control from a distance. Add to that the fear of valuable data falling into competitors' hands, the erosion of in-house knowledge, and the possible degradation of service levels during the handover, and the whole proposition can seem too risky to consider. In fact, in a September survey of 500 finance executives at mid-sized to large firms, industrial property insurer FM Global found that a high proportion of respondents — 84 percent in the United Kingdom, 59 percent in Germany, 48 percent in France — view their concerns about the risks associated with outsourcing as "moderate" to "high."

Attitudes like these are understandable, notes Phil Searle, CFO of Cendant TDS International Markets, the $2 billion U.K.-based division of Cendant, a $20 billion U.S. hospitality services group. While processes like accounts payable (A/P) and receivables management may be "non-core, they are what I call 'mission-critical,' " he says. "If these things fail, it doesn't matter how non-core they are; they can destroy your business."

There are practical difficulties, too, admits Anoop Sagoo, vice president of Accenture Finance Solutions in Europe. Cutting loose even repetitive, transactional finance processes such as accounts receivable (A/R) is rarely as simple as uncoupling, say, payroll or other non-finance processes. "Finance in most organizations remains a spider's web of connections between different departments, which always makes it complicated," he says.

That's why plenty of CFOs will continue to resist the outsourcing tide. But at the very least, the fact that the option is open to them is making many finance chiefs look afresh at the total finance value chain. In doing so, they're delving into metrics such as cost per vendor invoice, general accounting costs as a percentage of revenue, payment cycle times for travel and entertainment in days, and A/P error rates as a percentage of claims. Says Rick Roth, Atlanta-based chief research officer at Hackett, the business advisory group: "World-class companies are looking broadly, asking, is this process of competitive advantage to me, and what's the best way to do it? Should it be done within a business unit, in corporate headquarters, in shared service centers (SSCs) onshore or offshore, or should we outsource it altogether?"

Location, Location, Location
Hackett calls this model "selective sourcing"; others call it "smart sourcing." For his part, Searle of Cendant TDS prefers the term "multi-dimensional sourcing," in which cost — the traditional driver of outsourcing and offshoring — is only one input. "You look at the whole range of F&A services, along processes and across your global footprint, and map them to your existing and desired cost structure, your service delivery requirements, your available and planned systems, processes and infrastructure, your in-house and desired skill levels, and your company risk profile," he says.

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