When someone says “outsourcing," what immediately comes to mind? For a lot of people, the term still conjures up images of customer service centers or armies of low-cost programmers cranking out millions of lines of routine code. But we believe this stereotype is off the mark. For one thing, outsourcing isn’t just for IT anymore. It now encompasses entire business processes such as HR, customer service and procurement. More importantly, outsourcing isn’t just about saving a few bucks. It’s also about freeing up your time. The judicious use of outsourcing is one more way to get day-to-day operations under control, leaving you free to concentrate on mission-critical initiatives that add value.  If you haven’t already looked into expanding the role of outsourcing to encompass more finance and accounting tasks, it may be time to take a closer look. (Your competitors probably are.) In the realm of finance and accounting, that means potentially taking advantage of low-cost talent, standardized technology and efficient processes from a highly competitive group of service providers.
Finance and accounting outsourcing (FAO) can provide many financial and operational benefits. Labor arbitrage is the most obvious. You’ll usually also be able to convert fixed costs to variable costs and make better use of cash flow. Other potential benefits include improved accuracy, better infrastructure, improved productivity and a higher level of customer satisfaction. A key to using outsourcing in a way that benefits your company without undue risk is figuring out what to send to outsiders and what to keep in-house. It’s not written in stone that finance needs to own every competency. Many of the tactical tasks that finance performs – payables, receivables, general ledger administration and payroll – can be handed off and be done better and cheaper. Even higher-level functions like cost accounting and financial analysis are fair game for top-tier outsourcing firms. What to outsource?
We believe that the main advantage of outsourcing is that it can free up time. Instead of worrying about routine tasks, you then have the ability to focus your energy on your core competencies – the things you do most effectively and efficiently – and the initiatives that will create the most value for your organization. To start, you should decide what is and isn’t core to your business strategy. Processes like accounts payable and receivable – and even fixed assets and reconciliation – are often non-core. For any process that could be non-core, including sub-processes within these core processes, you should gather operational performance metrics such as cost, quality and cycle time. Developing a business case is essential to identifying opportunities and mitigating risks in any outsourcing program. You can start by comparing how much it costs to do the work in-house with how much service providers are charging for the same work. To get a complete picture, it’s important to dig down deep to see what’s really driving your current costs. Take accounts payable. While a core process, you might find that the key metric is the cost of processing expense reports. These sub-processes need to broken out and analyzed in your preliminary discussions with service providers. Managing the transition
Once you’ve decided what to outsource and developed a solid business case, you need to select a provider and manage the transition. This is where many companies trip up. Small errors at this stage can end up costing millions later. Here are some pitfalls to watch out for: Contract Specifications
It’s important that your outsourcing vendor’s goals and compensation be tightly aligned with those in your business case. Make sure their targets and deadlines are consistent with yours - and that all of your assumptions are realistic. Transition costs
These are easy to underestimate. No matter how smoothly the handoff goes, there are bound to be a few kinks. You’ll need to budget plenty of time and resources to handle those. Tax Implications
Part of the cost advantage of outsourcing can be wiped out by tax rules, especially offshore where the rules may not be very obvious. Even moving a process to a different state or province can bring unintended consequences. Be sure to get your tax people involved in the planning stage. Finding The Right Balance
Like anything else, outsourcing is what you make of it. Some companies have used it as an entrée for a complete transformation of their entire finance unit. Others find it helps to shave costs from a more narrow set of functions or to fix a handful of broken processes.
The key is finding the right balance. You don’t want to outsource too much and lose control. But you should want to outsource enough to realize significant savings, become more efficient and free up your time to focus on other important initiatives. Getting that balance right boils down to knowing which of finance’s processes contribute to the competitiveness of the larger business. So it’s time to change your image of outsourcing. Replace those old images of people doing grunt work with a new one: a picture of yourself getting other important work done that you know is truly adding value. This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. Written in association with the Economist Intelligence Unit (EIU)
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