Management Accounting

Controllers Eye Alternatives to Outsourcing

After outsourcing mundane finance and accounting functions for years, some companies are now insourcing those same tasks. What gives?
Kathy HoffelderNovember 14, 2012

When chief accounting officers and controllers look to cut costs these days, they typically turn to their shared service centers to see what other transaction-processing or accounts-payable functions can be outsourced. But some are finding that “insourcing” those same tasks can save just as much money and may also increase efficiency.

“You outsourced to providers that had bigger scale and you outsourced to providers that were offshore because they could get the cheaper labor. What I’m starting to notice now is there’s another trend called insourcing,” said Nick Cyprus, vice president, controller, and chief accounting officer at General Motors, at a Financial Executives International (FEI) conference this week.

Many corporations began setting up shared service centers about a decade ago to reduce costs resulting from duplicated functions throughout business units. By centralizing and then outsourcing tasks via those units, the cost savings began to add up. And accounting and finance functions seemed to be the logical place to start for financial shared service centers. But several corporations are now reversing that pattern and bringing the functions back in-house.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“Some of our franchises around the world had outsourced significant portions of the financial process. We are now in the process of getting them back,” said Stephen J. Cosgrove, vice president, corporate controller, and chief accounting officer at Johnson & Johnson, who noted at the FEI conference that the decision was based on cost, quality, and how effectively he could manage those units.

“In some cases, we can actually do it cheaper in-house. In some cases, it was dissatisfaction with the quality of the work that was being done,” he added. Keeping the tasks in-house enabled Johnson & Johnson to more accurately certify that the work was completed the way it wanted it and mistakes were kept to a minimum, noted Cosgrove. The insourced shared service units “have been fairly economic. For us, it’s been a real positive thing to keep it in-house.”

Johnson & Johnson does more than 90% of its transaction processing, such as accounts payable, through its shared services center in Prague, according to Cosgrove.

Firms like spice maker McCormick & Co. are going further. McCormick insourced all of its accounts receivables, accounts payable, general ledger, and reconciliation functions within its shared services group in the United States, said Kenneth A. Kelly, senior vice president and controller at the company, at the FEI conference. Insourcing, he said, has enabled the firm to decrease the cost per transaction over a 10-year basis.

In fact, if McCormick outsourced shared services, Kelly added, his “talent pool would be less,” since only the finance units of financial planning and analysis, marketing, and sales that report into him would be left. He favors leveraging all of his corporation’s existing resources.

Among corporate controllers who still plan to outsource their shared services, at least one, Susan Grafton, senior vice president, controller, and CAO at Best Buy, plans to keep the management of those outsourced units closer to home. Grafton said the way she has made the outsourcing of shared services work is to tell staff that if any problems arise from the outsourced work, “you own it.”

Grafton reminds her staff that they cannot point the finger at an offshore location and say, “that was India. They made the mistake.” She said her reports need to consider the outsourced work as still their responsibility and, in a sense, the contracted staff as part of their own staff. “They sit in a different time zone but that’s their staff,” she said.

Best Buy has moved most of its account reconciliation and the processing of its lease transactions offshore.

4 Powerful Communication Strategies for Your Next Board Meeting