Finance and Accounting Outsourcing (FAO): December 2007 Preview deck

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1 Finance and Accounting Outsourcing (FAO): December 2007 Preview deck Topic: Outsourcing Order-to-Cash (O2C) and Procure- To-Pay (P2P) Opportunity to Create Business Impact

2 Table of contents (page 1 of 2) Topic Page no. Background and scope 4 Summary of key messages 5 Functional vs. process-driven approach 7 Summary 8 Traditional FAO approach and end-to-end FAO approach 9 Frequency of inclusion of F&A processes in FAO contracts 10 Buyer objectives and satisfaction level 11 Pain points in buyer s financial supply chain 13 Buyer willingness to outsource O2C/P2P processes 14 Characteristics of O2C and P2P solutions 16 Summary 17 Frequency of inclusion of O2C/P2P sub-processes in FAO contracts 18 Objectives for outsourcing O2C/P2P 19 Applicable value levers in O2C/P2P outsourcing 20 Current and future investment focus for FAO suppliers 21 Typical staffing profile in O2C/P2P contracts 22 Technology solutions in existing/planned FAO 23 Service levels in FAO 24 Pricing structures in FAO contracts 25 Key challenges in outsourcing O2C/P2P 26 2

3 Table of contents (page 2 of 2) Topic Page no. Supplier landscape 27 Summary 28 Supplier offerings in outsourced O2C/P2P services 29 O2C/P2P supplier classification 31 Industry-focused O2C/P2P offerings 32 Target buyer segments for outsourced O2C/P2P services 33 Supplier technology strategies 34 Relative importance of supplier-selection criteria 37 Implications for key stakeholders 38 Implications for buyers 39 Implications for suppliers 41 Appendix 43 Supplier profiles 44 Outsourced O2C services 44 Outsourced P2P services 56 Buyer case studies 68 O2C case studies 68 P2P case studies 70 Web-based survey: response profile 72 Glossary of terms 73 References 77 3

4 Background and scope of the research Finance and Accounting Outsourcing (FAO) is well into the rapid-growth phase with established models and demonstrated supplier capabilities. Thus far, the value proposition has focused on providing directcost advantage by outsourcing transactional processes like Accounts Receivable (AR) and Accounts Payable (AP). However, buyers are now willing to explore expansion of outsourcing scope to include end-to-end processes like Order-to-Cash (O2C) and Procure-to-Pay (P2P) that impact metrics related to business outcomes like reduced Days Sales Outstanding (DSOs), reduced working capital, better procurement compliance, efficient closing of account books, fixing of bad debts, and improved compliance. In this research study, we investigate the business value and the market state of outsourcing O2C and P2P processes. The objective of the study was to identify the opportunity and the constituents of the business case for outsourcing, and analyze the solution components required to offer end-to-end O2C and P2P outsourcing offerings. The research is based on three key information sources: An executive level Web-based survey of FAO buyers and suppliers Proprietary Everest database with 240+ multi-process FAO contracts Focused interviews with FAO suppliers including Accenture, Genpact, IBM, Infosys BPO, IQBackOffice, VWA, and Wipro 4

5 Summary of key messages (page 1 of 2) Functional versus process-driven approach FAO contracts have traditionally been structured with a functional and piecemeal approach, as opposed to an end-to-end process-driven outsourcing approach. The focus has been on outsourcing transaction-intensive processes like AP, AR, and general accounting While most buyers are satisfied with their FAO contracts, business and strategic impact through outsourcing remains elusive. Inefficient financial supply chains continue to be pain points for most buyers Consequently, a majority of the buyers are now willing to shift focus from the traditional approach that is functional and piecemeal to an end-to-end process-driven approach for outsourcing F&A Characteristics of O2C/P2P solutions AR can be expanded to a broader O2C process while AP is an integral part of the P2P process. The broader scope changes the perspective from a function view to a process view With expansion of scope, the value proposition of outsourcing extends from being purely costbased to cost-plus. There needs to be re-prioritization of outsourcing value levers as scope expands to end-to-end outsourcing Buyers of traditional FAO are augmenting/planning to augment core F&A systems to plug the gaps in existing functionality. However, end-to-end FAO buyers show a significant interest in multi-client platform-based solutions O2C and P2P processes have high offshorability though they require an onshore-offshore model to handle the end-to-end scope Pricing structures in end-to-end contracts typically include a base fee along with businessimpact pricing or gain-sharing as opposed to primarily FTE-based pricing in traditional FAO. Focus of service levels is also shifting from diagnostic metrics to business-oriented metrics Despite a clear realization of the potential from an end-to-end approach, key challenges impact adoption rates. Conflicting interdepartmental priorities represents the biggest challenge 5

6 Summary of key messages (page 2 of 2) Supplier landscape Over 85% of the FAO suppliers are offering or plan to offer outsourced O2C/P2P solutions. While the end-to-end offerings are still not mature, options for buyers who want to outsource O2C/P2P processes are increasing. The supplier landscape consists of global multi-tower players, full-scope FAO players, IT outsourcers, and specialists Over a third of the supplier community is focused on developing vertically focused O2C/P2P offerings especially for financial services, manufacturing, and retail clients. Suppliers have been able to scale down their O2C/P2P offerings to appeal to the upper-end of the midmarket, but the lower-end of the mid-market continues to be highly under-penetrated Most suppliers tend to use a mix between internally developed and partnership-based solutions depending on availability, cost, speed to market, integration with other technologies, and customer requirements Supplier selection is based on a multi-dimensional criteria based on the buyer s unique business scenario. FAO experience, financial stability, process and technology capability, along with the ability to support global operations are the top 5 selection parameters 6

7 FAO contracts have traditionally been structured with a functional and piecemeal approach as opposed to an end-to-end process-driven outsourcing approach Traditional FAO Functional piecemeal outsourcing approach Strategy Order-to-Cash (O2C) Process Judgment-intensive processes Transaction-intensive processes End-to-end FAO Process-driven outsourcing approach F&A strategy Order management and billing Dispute & deduction management Accounts receivable Aging and collections Internal audit Analytics and reporting Multi-process FAO Budgeting/forecasting Capital budgeting Treasury & risk management Management reporting & analysis Regulatory reporting & compliance Fixed assets General accounting Accounts receivable (AR) Tax Payroll Accounts payable (AP) and T&E F&A transactional services Procure-to-Pay (P2P) Process Sourcing support & catalog management Purchasing Spend analytics Accounts payable Aging and T&E collections Source: Everest Research Institute (2007) 7

8 The study investigates the business value and the market state of outsourcing O2C and P2P processes (page 1 of 2) Outsourcing objectives Average importance on a scale of Satisfaction levels Buyer objectives from FAO Facilitating strategic initiatives ILLUSTRATIVE Achievement of objectives Average buyer response Supplier perspective Improved business outcomes Enhance service levels 1 Improve compliance Cost reductions Enhanced efficiency Enhanced effectiveness Technology-led transformation Technology-led transformation Improved business outcomes Enhanced effectiveness Improved compliance Enhanced service levels Enhanced efficiency Cost reductions Value proposition Buyer perspective Importance of objectives for outsourcing O2C/P2P Nature of impact Average importance on a scale of 1-5 Buyer interest Not satisfied Somewhat satisfied Satisfied Does the existing/planned scope of outsourcing include O2C/P2P processes? Percentage buyer response Enhanced customer satisfaction Strategic impact Improved decision making Improved collaboration Improved contract compliance Faster dispute resolution Business Improved regulatory compliance impact Reduced DSOs Reduced working capital Reduced write-offs Reduced bad debts Direct-cost Cost reduction impact Source: Everest Research Institute (2007) No Yes % % 100% = XX XX XX Outsourced more than 3 years ago % % Outsourced less than 3 years ago % % Plan to outsource in the next 1-3 years 8

9 The study investigates the business value and the market state of outsourcing O2C and P2P processes (page 2 of 2) Process scope Frequency of inclusion of O2C sub-processes in FAO contracts Number of contracts Technology solutions Percentage buyer response No technology component ILLUSTRATIVE Traditional FAO End-to-end FAO Dispute & Order Accounts Billing deduction management receivable management Frequency of inclusion of P2P sub-processes in FAO contracts Number of contracts Aging and collections Analytics and reporting Development and maintenance of existing F&A systems Add-on technologies that augment existing F&A systems Custom tailored end-to-end solution Sourcing support and catalog mgmt. Purchasing Accounts payable and T&E Spend analytics Multi-client platform-based end-to-end solution Supplier landscape Global multi-tower Supplier 1 Supplier 2 Supplier 3 Supplier 4 IT Outsourcers FAO full-scope Established Established Supplier 19 Supplier 20 Supplier 5 Supplier 6 Supplier 21 Emerging Supplier 22 Increasing options for O2C/P2P buyers Supplier 7 Emerging Supplier 8 Key challenges Percentage response Organizational Technological Less important Moderately important Very important Critical Supplier 16 Supplier 17 Supplier 9 Supplier 10 Supplier 18 Supplier 11 Solutioning Specialists P2P focused O2C focused Supplier 14 Supplier 15 Supplier 12 Supplier 13 Contractual 9

10 The report profiles the O2C and P2P offerings of leading FAO suppliers FICTIONAL EXAMPLE XYZ Fictional Supplier Established offering Nascent/emerging offering Not a focus area Company profile: XYZ Company is a leading provider of IT products, technologies, solutions, and services to consumers and businesses globally. XYZ provides services relating to consulting, outsourcing, support and solutions deployment to consumers and businesses. Over the last AB years, the company has been turning its attentions and substantial resources to provide BPO services on a global basis. Web site: Key leaders: Terry Francona, SVP for XYZ Services; Manny Ramirez, SVP & General Manager for WW Outsourcing Services; David Ortiz, Managing Director for BPO; Curt Schilling, Managing Director for EMEA Major O2C clients: Boston Red Sox, Atlanta Braves, NY Yankees, SF Giants O2C delivery locations: Hangzhou (China), Brno (Czech Republic), Bangalore, Chennai, Jaipur, Pune (India), Manila (Philippines) Overall revenues US$3 billion Total employees 78,000 FAO employees 1,800 O2C employees 310 Major investments in O2C/P2P pace: Build deep domain capability in mature Verticals (Travel, BFSI), and invest in incubating new verticals XYZ University with dedicated trainers delivering a host of courses such as Accounts Payable, Accounts Receivable, General Ledger, and FT&A Integrate technology and processing capability and develop new proprietary work solutions Breadth of O2C/P2P offering Sub-process 1 Sub-process 2 Sub-process 3 Sub-process 4 Sub-process 5 Target industries Target buyer segments Target geographies Energy & utilities Less than US$1billion USA Manufacturing and retail Canada Hi-tech & telecom US$1billion-US$5 billion UK Travel and logistics Healthcare US$5billion-US$10billion Rest of Europe Financial services Asia and Australia Government Greater than US$10 billion Latin America 10

11 It also provides case examples of existing O2C and P2P buyers Buyer Supplier Subprocess 1 Subprocess 2 Subprocess 3 Subprocess 4 Subprocess 5 FICTIONAL EXAMPLE In-scope processes Buyer details Revenue: Approximate size: Industry: Countries of operation: Background Key drivers Improve efficiency of F&A processes and systems Improve customer satisfaction Client objectives for outsourcing O2C Reduction of redundant calls Accurate cash application Challenges Reduction of redundant calls Regional-level consolidation Identification and consolidation of accounts operating in more than one location within the same region and to provide a common accounts payable process Company-level consolidation Identification and consolidation of accounts operating in more than one location between regions and to provide a common AP irrespective of customer numbers Accurate cash application and open cash Scope of work Process scope: F&A AP, Travel & Expense, General Accounting, Joint Venture Accounting, Inventory Accounting, Payroll, Financial reporting & analysis. Procurement - Strategic sourcing, Coding rationalization & spend data analytics, Supplier management, Requisition to PO, Reporting and Analysis Managed spend: ~ US$14 mm is the contract value Deal started and length of contract: Dec 2005, 5 years Client operating geographies: Global Delivery Locations: India Results targeted/achieved: US$25 million in cost savings Identification and implementation of Tech enhancements (Workflow Implementation, management) Implemented a robust operating model to ensure adequate governance and visibility 11

12 Web-based survey: response profile Between August and October 2007, Everest Research Institute conducted a Web-based survey to investigate the market for outsourcing O2C and P2P processes Survey respondents by role in the outsourcing market Percentage response Survey respondents by job title Percentage response Suppliers Buyers 100% = 88 C-level 3% 3% Existing/potential buyers 39% 61% Suppliers Senior management (SVP, VP, MD, Director) Middle management (Sr. Manager, Manager) 24% 30% 13% 7% Others 15% 6% Buyer respondents by size Percentage buyer response Buyer respondents by FAO adoption Percentage buyer response Supplier respondents by size Percentage supplier response 100% = % = % = 54 Large buyers (Annual revenues> US$5 billion) 56% 44% Mid-market (Annual revenues <US$5 billion) FAO planned in the next 3 years FAO planned in the next year 31% 19% 22% 16% 13% Outsourced more than 3 years ago Outsourced between 1 & 3 years Outsourced less than 1 year ago Greater than US$10 billion US$1-10 billion 22% 20% 58% Less than US$1 billion 12

13 Additional FAO research recommendations The following documents are recommended for additional insight on the topic covered in this Research Report. The recommended documents either provide additional details on the topic or complementary content which may be of interest 1. Finance and Accounting Outsourcing (FAO) Annual Report 2006 (ERI R-0128); This research examines the global 2006 FAO market and provides insights, detailed analyses, and implications for stakeholders along three key dimensions: (1) market size and buyer adoption, (2) transaction characteristics and value proposition, and (3) supplier landscape 2. Technology Innovation in FAO (ERI R-0156); This research investigates the impact technology innovation can and will play in driving incremental value from FAO, analyzes the ownership, provision, development, and deployment of technology solutions that augment an ideal end-state for adopters of outsourced F&A offerings, comprehensively analyze the technology capability of 15 leading FAO suppliers, discuss the key implications for buyers and supplier 3. Global FAO Supplier Landscape (ERI R-0163); Analyzes the fast-changing global FAO supplier landscape, investigate the changing market dynamics and emerging supplier trends, assesses supplier delivery capability across scale, scope, technology, and delivery footprint, profiles key FAO suppliers 4. Global Sourcing in FAO (ERI R-0171); Analyzes key trends emerging in the offshore FAO market. The report focuses on value proposition of offshoring in FAO and key offshore adoption trends, offshore supplier and location landscape, and implications for the market as it innovates beyond labor arbitrage 5. Outsourcing Order-To-Cash and Procure-To-Pay Opportunity to Create Business Impact (ERI W-0214); This whitepaper discusses the current state and future direction of the O2C/P2P segment of the FAO market and presents viewpoints on the value proposition driving the interest in outsourced O2C/P2P offerings. It also outlines the challenges and benefits of outsourcing O2C/P2P For more information on this and other research published by the Everest Research Institute, please contact us: Katrina Menzigian, Vice President:: Saurabh Gupta, Research Director: Richa Bansal, Research Analyst: FAO team: Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX Phone:

14 Get the answers today that lead to tomorrow s success Everest Research Institute has the resources, experience, and capabilities to provide companies with the strategic intelligence, analysis, and insight that are crucial to making the right decisions in today s outsourcing marketplace. With the vision of our leadership team, the personal commitment, and indeed, the passion of our professionals to deliver real value to our clients, our organization is unsurpassed in its ability to guide your company s future success. Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX U.S.A info@everestresearchinstitute.com Everest India Ground Floor, Tower A Unitech Business Park South City - I, Gurgaon National Capital Region India Everest Group 150 E., 52 nd Street, 16 th Floor New York, NY U.S.A Everest Australasia Level 6, 90 Mount Street North Sydney, NSW 2060 Australia Everest Canada The Exchange Tower 130 King Street West, Suite 1800 Toronto, ON Canada M5X 1E Everest UK 83 Baker Street London, W1U 6LA United Kingdom Everest Europe Atrium Building 3 rd Floor Strawinskylaan ZX Amsterdam Everest Australia 409a Wattletree Road East Malvern Melbourne, VIC 3145 Australia