The evolving business of Finance & Accounting - New delivery models for debits & credits

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1 Inside: - Overview - Evolution of F&A Capabilities - SaaS, Cloud and Corporate F&A - Decisions CFOs & Controllers Must Make - Summary A Special Report from Vital Analysis The evolving business of Finance & Accounting - New delivery models for debits & credits Overview The convergence of technology, process re-engineering and globalization has already permanently and profoundly changed the world of corporate finance. One of the more recent waves of change brought BPO (business process outsourcing) to finance and accounting. Now, on-demand finance & accounting is being rolled out in much the same way that SaaS (software as a service) has become a viable, respected option to the traditional on-premise software world. The Evolution of Corporate Finance & Accounting Capabilities Have you really looked at your options for finance & accounting lately? BPO (business process outsourcing) for Finance and Accounting has been going on for a time. The industry owes some part of its success to the shared services efforts of larger firms. When businesses created shared services facilities, they standardized, among other things, their finance and accounting systems and processes. Throughout the last two decades, many, many global enterprises have consolidated their numerous, diverse accounting solutions and data centers to one, shared operation. Shared service centers Copyright TechVentive, Inc. Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 1

2 become de rigueur in modern businesses because of the tremendous operating efficiencies they could bring to bear. How great were these efficiencies? The average large business prior to 1960 was spending approximately 4% of its total revenues on back office (i.e., finance, accounting and human resources) functions. The deployment of back office computing solutions reduced that number measurably. The availability of shared service centers got these costs to approximately 1% of total revenues today. Some of the best run firms now experience back office operational costs of less than 0.5% of total revenues. In creating shared service centers, businesses designed new finance and accounting (F&A) processes that were a step change improvement in cost, efficiency and effectiveness. They often sped up the time to close the books, reduce errors (and the cost of correcting accounting errors), and improved the consistency in processing that delights internal and external auditors. After hundreds and hundreds of shared service operations were established, some businesses moved these facilities from local facilities to lower cost countries. Low cost telecommunications, global F&A software solutions and ubiquitous Internet access helped lower the barriers to cross-country F&A work. Ireland and some Eastern European countries were the original beneficiaries of this trend. Indian and China came next as more firms looked to labor arbitrage to cut the cost of F&A work. These captive shared service facilities then became material assets of their corporate owners. At different times, many of these operations were sold to outsourcing firms. GE spun their operation out and we now know this operation as GenPact. GenPact took F&A outsourcing up a notch and recruited/trained scores of process black belts to improve the performance of F&A processes. Likewise, other F&A BPO providers have worked to improve the operational efficiencies of F&A processes. SaaS, the Cloud and Corporate Finance & Accounting So, where do businesses go today? What do mid-size or smaller firms do? Small firms have often utilized contract accounting services that are often provided by CPA firms. For low volume, small businesses, this approach has been cost-effective and lower risk than in-house solutions. Mid-sized businesses haven t had as many options. They are often forced to acquire expensive, on-premise accounting software and hire a large staff to do the necessary F&A work. These mid-market firms are often too small to attract the attention of larger F&A BPO providers and too large for local, CPA-based accounting service providers. The Cloud may change that the cloud and a firm like Corefino. In prior evolutionary cycles, companies had to license their F&A applications from software vendors. They also had to acquire an F&A staff. The very best expertise was Copyright TechVentive, Inc. Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 2

3 only available to the largest firms and those with the money to pay for it. Again, midmarket firms were often squeezed. SaaS and Cloud phenomena can change that. SaaS vendors can put world-class F&A technology on the web, secure the data, etc. and make it accessible to businesses globally no matter what size firm they are. This new generation of technology also permits firms like Corefino to offer SaaS (software as a service) accounting software along with trained accounting professionals. The combination of great talent and software reduces the capital outlay and personnel headaches that many F&A Controllers and CFOs face. The attraction of this type of solution could be compelling. Few F&A operations are strategic. Accounts Payable, Accounts Receivable, Fixed Assets, etc. are rarely strategic. Tactical functions are often good candidates for outsourcing. If an outsourcer provides the software (instead of just operating the client s licensed software) and the people who will use it, the value proposition gets more interesting, especially for mid-market firms. Certain strategic F&A activities (e.g., strategic acquisitions, capital financing, etc.) will not be outsourced but for the basic, non-differentiated activities (e.g., bill paying), outsourcing could be the norm. The Decisions CFOs and Controllers Must Make The decisions for Controllers and CFOs today are varied: - License software, hire and train an internal F&A staff and develop all manner of policies, controls and procedures on your own nickel. This approach has a high upfront capital cost, high audit costs, many personnel issues and lots of recurring costs in the form of needed hardware upgrades, software maintenance fees, periodic software patches and re-implementations. This option does keep the data and systems entirely within the company. - Transfer the systems of one s F&A environment to an outsourcer to operate. The outsourcer assumes responsibility for maintaining and running the software but may do little more. - Transfer the systems and some personnel to an F&A BPO firm. These companies may deliver an Today, the issue isn t just the cost of finance and accounting. The issue is now: how can the level of service received be enhanced without causing the costs to increase. Businesses want three things: - access to world class skills - top quartile performance outcomes - outstanding finance & accounting software immediate step-change improvement in business processes and/or systems. This solution is great, short-term, for those firms with grossly inefficient F&A operations but may not produce many benefits for those already operating in the first or second quartile of F&A performance. - Cutover most F&A functions, personnel and systems to a cloud-based F&A outsourcing provider. This approach is great for those who want to avoid a Copyright TechVentive, Inc. Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 3

4 large capital outlay and need to upgrade their talent, processes and/or systems. For smaller and mid-sized firms, this option may make access to superior accounting talent very affordable. Process Re-engineering? Shared Service? Business Process Outsourcing? The Cloud? Finance & Accounting Productivity Levers Low-Cost Country Talent Sourcing? On-Demand? On-Premise? Upgrade Talent? Upgrade Service? Lower Cost? Summary Competition and evolution create choices in the marketplace. The decisions many executives must make regarding their back office operations are myriad but here are a few key ones they need to decide upon now: on-premise or SaaS-based finance & accounting software in-house or outsourced finance & accounting operations in-house talent for strategic and/or tactical finance & accounting personnel SaaS-based financial software has matured materially in recent years. Likewise, outsourced and contract operations capabilities have matured, too. What s different is that mid-market users now have access to the solution types and talent that were previously only possible for the very largest or smallest customers. F&A executives now have more options to choose from and an even more diverse group of solution providers. If you run an F&A operation and the current crop of on-premise software solutions look too limited, too expensive and too much of a headache, then look at some of the new opportunities out there today. Copyright TechVentive, Inc. Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 4

5 About Vital Analysis Vital Analysis is a very different kind of technology research organization. We are the intersection set where exceptional technology market knowledge meets the executive suite. Where other analysts replay vendor press releases, we give you the: impact new technologies will or won t have on your business reasons why you should or shouldn t care about specific emerging solutions business justifications why you may or may not want specific solutions Vital Analysis was carved out of TechVentive, Inc. in 2007 as a new, but complementary business. As designed, Vital Analysis is the publishing, research and analytical arm of that company. Our reach, like our blog readership, is truly global. We ve consulted with top technology executives in Australia, Brazil, Canada, United Kingdom and the United States. We ve been briefed by technology providers from virtually every corner of the planet. About the Author Brian Sommer is the CEO of TechVentive, Inc. - a market-strategy and content firm. Brian closely follows what C-level executives think, feel and need. Brian also publishes a blog on the intersection of application software and professional services ( He welcomes your thoughts and invites you to contact him at brian@vitalanalysis.com. Reproduction of this publication in any form without prior written approval is forbidden. The information in this report has been obtained from sources believed to be reliable. TechVentive, Inc. disclaims all warranties as to the accuracy, completeness, or adequacy of such information and shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended result. The opinions expressed herein are subject to change without notice. To purchase reprints of this document or to quote passages within, please contact@techventive.net. Copyright TechVentive, Inc. Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 5