Big D Treasury Conference Dallas, TX Finance & Accounting

Report
Big D Treasury Conference
Finance & Accounting Business Process Outsourcing 101
or “Everything You Wanted To Know About F&A Outsourcing*
*(and were afraid to ask!)
September 17, 2014
Presented by:
Alpesh Kadakia & Bill Shirk
PwC
HP
F& A BPO Trivia!!
1
4
Which Fortune 500 company is
largely credited for the
establishment of Finance
Outsourcing and Global Delivery?
What is the top
emerging F&A
destination for 3rd
party service
providers and Shared
Service Centers in
EMEA?
F& A BPO Trivia!!
2
5
F& A BPO Trivia!!
What percentage of Fortune 100
companies have placed at least one
process with a 3rd party or in a
shared services environment?
In the SS&O world, what is GBS?
A) Gigabytes per Second
B) Global Business Services
C) Google Branding Session
3
6
What is the most common
finance process to be
outsourced?
Who is 3rd Party Service provider
with the largest share of the F&A
outsourcing market?
A) Accenture
B) HP
C) IBM
8
In the SS&O world,
what does BPO stand
for?
A) Business Process
Outsourcing
B) Benzoyl Peroxide
C) Banker’s Pay
Order
2
F& A BPO Trivia!!
7
What is the size of the Global
Finance Outsourcing Market ?
A) $5 Billion
B) $10 Billion
C) $25 Billion
Definition of Outsourcing
Outsourcing is the transfer of a process from the buyer to the supplier
• Implications:
− Supplier now owns the process
• Responsible & accountable
− Buyer only influences the process
• Provide Inputs
• Define desired Outputs
Outsourcing
Offshoring
3
Comparison of Outsourcing vs Shared Services vs GBS
Dimension
Shared Services
Objective • Cost savings, improved efficiencies
and occasionally compliance
Outsourcing
Global Business Services
• Typically cost savings driven
• Cost savings, efficiencies, compliance, service focus, agility,
scalability, and innovation
• Typically 1-2 non-core process
• 1 or more providers
• Typically business critical processes
not outsourced
• 2 or more processes, often including the less obvious
choices
• Includes business critical processes
• Process are considered for GBS unless core to the
business
• Chooses best solution (i.e. shared services vs. outsourcing)
Scalability • Scalability typically limited to initial
scope
• Highly scalable
• Highly scalable by design
Efficiency • Leading practice is focused on
driving reduced cost and process
efficiency
• Leading practice is focused on
driving reduced cost and process
efficiency
• Ability to achieve greater efficiencies across processes
(e.g. handoffs)
Effectiveness • Standardized processes but limited
to processes those n scope
• Ability to drive improved
effectiveness depends on the
provider
• Highly focused on driving cross-process effectiveness
• Highly standardized processes
Cost Savings • Cost savings of 20-50% typically
achieved on the processes in scope
• Cost savings of 20-50% typically
achieved on the processes in scope
• Cost savings are optimized across all processes in scope
often resulting in enhanced savings
Agility • Agile as it relates to in-scope
processes
• Limited by the scope of the contract
with provider
• Agility is high because coordinated centrally
Innovation • Very limited
• Leverages provider capabilities to
drive process innovation but is
typically siiloed
• Focus on cross-process innovation drives benefits
• Has a focus on developing new services
Transition • Internally managed transition
processes
• Managed internally and by providers
• Managed internally and by providers if applicable
• Leverages leading practices/lessons learned
Scope • Typically 1-2 non-core processes
• Can include business critical
processes
4
Outsourcing vs Shared Services vs GBS (cont’d)
Dimension
Shared Services
Transition • Internally managed transition
processes
Outsourcing
Global Business Services
• Managed internally and by providers
• Managed internally and by providers if applicable
• Leverages leading practices/lessons learned
Performance Management • Leading practice is SLA-driven
• Tends to create siloed approach
• SLA-driven
• Tends to be siloed
• Cross-process and integrated
• Scorecard, SLA- driven
Relationship Management • Tends to be arms length
• Arms length with third party
• Strategic partner with the business
• Frequently managed as separate
contracts within functions
• Centralized and coordinated
• Significant
• Transformational
Governance • Variety of approaches ranging from
siloed to coordinated
Degree of Change from • Moderate
Decentralized Operations
Culture • Practice is to establish a servicefocused culture
Integration • Typically depends on number of
shared services location
• Typically approached as managing a • Service-focused culture is fundamental
third party contract
• Work as a single team regardless of whether shared
services or outsourced
• Transformational change
• Varies depending on size of service
provider portfolio
• Highly integrated sourcing strategy and execution across
processes, leveraging leading practices and lessons
learned
Information Technology • Alignment with IT depends on
whether IT is in shared services
• Limited opportunity to achieve
alignment even if IT is part of
contract
• Strong coordination between IT and processes
• Becomes a provider of solutions, not technology
• Leverage common IT platform (not necessarily single ERP)
Impact on M&A Activity • Can provide some synergies
depending on level of maturity
• Challenging to bring processes back
in-house
• Opportunity to leverage existing
contract
• Very high degree of synergies can be achieved
• Speed of integration is improved significantly
5
How is outsourcing different from contracting?
Contracting
Outsourcing
• Buyer retains ownership over
process & results
• Buyer retains overall control and
cost for investments
• Project based services - e.g. limited
time and scope of work
• Limited involvement of buyer in
process
• No tools, processes, or methods
• Process ownership is transferred to
supplier
• Supplier owns responsibility for
results (accountable-SLs/penalties)
• Contracts are long-term in nature
(3-7 years)
• Supplier sells “solution”
• Investment required by either/both
parties
• Buyer benefits from supplier tools,
processes, & methods
• Transfer of employees and/or
assets
• Large economies of scale
6
Why outsource Finance and Accounting processes?
Finance organizations still face many of the fundamental challenges with people,
processes and technology
Disparate ERP systems
and versions through
inorganic growth
Managers who perform
transactional activities, with
1-3 direct reports
Highly compensated staff who
perform transatcional activities
with 8-12 years of tenure
Poor process
controls
Routine and
costly
maintenance
Inconsistent job
classifications and
responsibilities across
business units
Homegrown legacy
applications
50-60% of processes with
manual intervention or
touch-points
Limited to no process
standardization
Lack of training to
ensure cross
coverage of services
Lengthy
implementation and
upgrade cycles
People
Process
No clear
demarcation
between processes
No documentation or
desktop procedures
Costly legacy
infrastructure
platforms
A lack of KPIs and
SLAs across
functional
organizations
Unclear career paths
for all staff and
manager levels
Technology
7
What are the advantages & risks in outsourcing?
Advantages
Risks
• Reduce and control operating costs
• Improve focus on business
• Gain access to world-class
capabilities
• Free [up] internal resources for
other purposes
• Access to resources & skills not
available internally
• Accelerate reengineering benefits
• Increase process standardization
• Make capital funds available
• Shared risk of investments
• Buyer locked in uncompetitive price
structure
• Supplier over commits, but unable
to deliver
• Benefits diminished due to
treatment as contract over
relationship
• Inflexibility in contract leads to
dysfunctional behavior & overcharging
• Disgruntled employees => or
reward - cultural change in buyer
environment
8
F&A Business Process Outsourcing
Common F&A Processes Outsourced
Finance and Accounting Value Chain
P2P
Financial Planning & Analysis (FP&A)
Record to Report
O2C
Performance Mgt/Decision Support
Cash &
Disbursements
(A/P / T&E)
Revenue Cycle
(Order to Cash)
General
Accounting
Project & Cost
Accounting
Financial /
External
Reporting
Business
Performance
Management
Retained activities
• Travel &
Expenses
• VAT
Reconciliation
Cash Mgt,
Treasury Mgt,
Risk Mgt, Tax
Planning &
Compliance
• Transaction processing
• Procedure Process maintenance
• Business Process maintenance
90%
• Accounts
Payable
Planning
Budgeting
Forecasting
Capital Platform Mgt
80%
70%
• Order Capture
70%
70%
• General Ledger
• Project Accounting
• Credit & Collections
• Accounting Policies
• Cost Accounting
• Billing / Invoicing
• Account
Reconciliations
• Inventory
Accounting
• Disputes /
Deductions
• Accounts
Receivable
50%
• Financial
Consolidations
• BU Financial
Statements
• Fixed Assets
• Statement Prep
• Tax Accounting
• SEC Filings
• Revenue Acctg
• Cost Management
• Customer/ Product
Profitability
• New Product Eval
• Life Cycle Costing
• Performance
Management
• Cont. Improvement
40%
• Periodic Budget
Prep
• Periodic Forecast
Prep
30%
• Cash Mgmt
• Compliance Mgmt
• Tax Mgmt
Sourced vs. Retained functions
Centralized activities
10%
•
•
•
•
Policy management
Strategy development
Decision making
Acceptance /Approval
30%
30%
20%
20%
• Budget Policies/
Procedures
• Investor
Relations
• Strategic Planning
30%
50%
• Corp. Dev.
60%
• Bank Relations
• Financial / Invest
Risk Mgmt
• Fundraising
• Debt Mgmt
• Tax Advisory &
Planning
70%
10
Tax Value Chain
Retained activities
Centralized activities
Policy and
Execution
Regulatory
Compliance
Tax Accounting
Transaction
Management
and Controls
Risk and Dispute
Management
Tax Business
Planning
• Policy
Documentation
• R&D Credits
• Payroll Tax
• Withholding Taxes
• Maintain Tax
systems and tools
• Tax reserve
• Foreign Tax
Capacity workings
• Sec 988 database
working
• Federal Tax Returns
• State Tax Returns
• Reporting for
indirect tax
• Regulatory
Documentation
• Compliance
management
• Data conversions
• Book to Tax walk
• Exemption
certificates
• Tax Accounting &
provisioning
• Tax Reconciliations
• Non- US Tax
Accounting &
provisioning
• Estimated Tax
Payments
• Reducing attribution
errors
• Payment and
remittance
• Manage, monitor
and report on
controls function
• Manage tax plans
and transactions
• Valuation Allowance
• Deferred Tax
Analysis
• Analysis, monitoring
and tracking of
disputes
• SOX Testing
• Control
Documentation
• Refunds
• Incorporate tax and
legal entity reporting
needs into ERP
system configuration
• ETR Analysis and
reporting
• Preparation of K 1s
• M&A Tax Due
Diligence
• M&A Tax Modeling
• Transfer Pricing
calculations
• Establish tax policy
and align with
corporate vision and
strategy
• Implement and
manage tax policies
and procedures
• Post Transaction
Integration
• Choose Tax
systems and tools
• Provision of
compliance
information to
regulators
• Develop tax and
compliance policies
• Advance Pricing
Agreements
• Personal Income
Tax Returns
• Tax accounting and
reporting under
domestic regulations
and international
financial reporting
standards
• Design internal
controls
• Dealing with Tax
Authorities
• Resolve
classification
• Other disputes and
issues with the
authorities
• Cross Border
Taxation
• ETR Planning
• State Strategic Tax
Review
• Tax Valuations
• Impact of Transfer
Pricing Policies
11
Treasury Value Chain
Retained activities
Centralized activities
Treasury Policy &
Governance
Planning &
Forecasting
Funding
Management
(Debt & Equity)
Surplus
Management
(Asset)
Cash Management
(Working Capital)
Risk Management
• Ensure accurate
valuation of financial
instruments
• Ensure accurate
accounting of
Treasury
transactions
• Ensure accurate
transaction history
and audit trail
• Intercompany
settlements &
netting
• Cash flow
forecasting
• Risk forecasting
• Operate Treasury
systems
• Ensure quality
standards of service
providers
• Tax planning
• Pensions planning
• Reporting
• Repay funds
• Interest
Management
• Ensure adequate
liquidity to support
business and
obligations
• Investing surplus
cash
• Manage long term
investments
• Trading
• Cash concentration
• Debt factoring
• Internal banking
• Confirmation and
reconciliation of
receipts
• Disbursement of
payments
• New vendor
approval
• Check Management
• Cash Collateral
Mgmt.
• Vendor payments
• Interest Rate risk
management
• Pension risk
management
• Scenario planning,
analysis and stress
testing
• FX & Commodity risk
management
• Counterparty risk
management
• Credit risk
management
• Liquidity risk
management
• Establish treasury
policy and align with
corporate vision and
strategy
• Provision of
covenant tests and
info to investors
• Provision of
compliance info to
regulators
• Work with internal &
external auditors
• Co-operate with
Board on strategic
development
• Investment appraisal
• Choose Treasury
systems
• Negotiate, analyze
and manage the
fee’s and margins of
service providers
• Set funding
requirements
• Raise funds
• Manage group
finance structure
• Equity repatriation
• Manage short term
investments
• Manual check
management
• Petty cash
applications
• Bank relationship
• Open/close accounts
• Seek natural hedges
and offsets within the
business
• Involvement in
business insurance
12
F&A Business Process Outsourcing
The Benefits
Many do it for cost, but that is table stakes….
By deploying an alternative service delivery model, $1-5B organizations typically save
20-30% of G&A costs
Function
Typical client situations
• Decentralized process with high volumes
• Lack of automation
Finance
Leading practices
• Consolidate number of collection agencies, AP
and AR centers
• Non-standard processes
• Centralize statutory & compliance activities
• Excessive rework and cycle times
• Standardize inputs and automate manual
accounting transactions
• Data intensive reporting process, complicated
• Centralize functions at COE and/or outsource
by complex consolidation environment
to 3rd party
• Disparate AR and payroll groups
IT
Procurement
HR
• Data quality & access
• Adoption of ITIL framework (Plan, Build, Run).
• Insufficient or manual analytical tools
• Remote delivery of Application Development
& Maintenance.
• Continued portfolio rationalization.
• Robust vendor management
• Assist with driving adoption rate of
standardized reporting.
• Lack of standardized processes
• Standardize processes and policies
• Excessive number of vendors
• Automate by leveraging standard ERP features.
• Redundant approvals and rework
• Reduce manual activities
• High volumes and manually intensive
• Monitor compliance and KPIs
• Ineffective use of time savings features within systems.
• User training
• Majority of resources reside in Regions and Areas/Field
• Issues with adoption rate of mobile time entry
• Increase adoption rate of mobile time entry, self-service functionality
and the service center
• Sufficiency of process measures
• Balance temporary and full-time labor
• Multiple benefit platforms
• Improve management of international staff costs
• Streamline benefit plans
14
… Although 50-65% savings coupled with other strategic benefits
makes this model highly compelling for many
Economic Benefits
Comparison of US Onshore and BPO Services
(US$000s / FTE / Annum)
Other
Facilities
70-80
4-8
4-8
People
Strategic and Other Benefits
• Access to comparable or better quality
talent
• Ability to build or enhance critical
capabilities (e.g., IT, R&D, Marketing)
• “Follow the sun” 24 x7 coverage
Operating
cost savings
• Tax advantages especially for moving
intellectual property creation offshore
50-65%
60-70
• Direct and complete control, without
relying on immature supplier capabilities
25-35
US In-House Cost
5-10
3-5
• Platform from which to expand presence
in emerging markets
15-20
• Breakthrough innovation and faster time
to market
Offshore Outsourcing
Note:
Costs for US corresponds to Tier 2 cities, whereas, costs for India correspond to Tier 1 cities
Source: Booz & Company GIC Experience, Booz Allen Hamilton and Duke Offshoring Research , Outsourcing-Center
15
F&A Business Process Outsourcing
Trends & Pushing Beyond F&A BPO
The Survey Says….Finance BPO is a clear priority
Typical Cost Impact
Implement Business
Process Outsourcing
& Shared Services
Standardize
Technology / ERP
Reduce Business
Complexity
Simplify the
Organization
Rationalize Reporting
and Data
Integrate stewardship
and governance type
functions & outsource
20-30%
•
•
•
•
Outsourcing
Shared Services
Centralization
Cloud services
15-20%
•
•
•
Reduce the number of applications and instances of financial systems
Implement accounting hub technology to increase flexibility
Eliminate offline spreadsheets
•
•
Dramatically reduce business complexity:
Reduce methods of doing business within company, methods of paying a
invoice, number of legal entities, management entities, bank accounts, etc.
•
Simplify the organizational structure through de-layering and increase span-ofcontrol
Rationalize roles/titles, review grading and look at down/up skill certain activities
Eliminate shadow finance functions
10-15%
5-10%
3-5%
2-4%
•
•
•
•
Simplify chart of accounts to support external financial reporting
Rationalize reports to a standard package and enable self-serve reporting, utilize
shared services to produce all standard reports
•
•
•
Consolidate risk/integrate, SOX, Internal Audit type functions
Perform integrated assurance with auditor
Outsource tax compliance and statutory account preparation
Based on 358
electronic
survey
respondents
and 10 indepth
interviews
with senior
finance
executives
across broad
range of
industries
Company Profile
17
Operating Model Evolution
Businesses adopt alternative service delivery operating models with major shifts in
technology architecture… and we are at such an inflection point
Pre-80’s
Mainframe
Late 90’s - Late 90’s
Client / Server. Networking
Late 90’s - Present
E-Business, Internet-enablement
Present – Future
Hybrid. On-premise, cloud, (XaaS)
Global Business Services (GBS)
BPO/Offshore
capture labor arbitrage
Operational benefits
50+%
20-40%
10-20%
5-10%
Decentralised
Operations,
Monolithic Systems
Multi-functional
Integration
Shared Services
In-House
Finance,
HR, IT
Coordinated
In-House Practices
(Finance + HR + IT)
Next Generation
Operating Model
Traditionally
Finance
& HR SSC
Increased cost reduction / variable structure, scalability, and agility
• Disparate systems
and ad-hoc
solutions
• Replicated
corporate & SBU
activities
• Increasing consolidation and improved
efficiency and effectiveness.
• Some standardization & increase in service
level
• Single country with single and multi-center
structure
• Well defined serviced levels, 24/7 & KPIs
• Cost effective technology/bandwidth; Webenabled workflow
• Multi-shore, partnering & single global
providers
• Global end to end process
standardization
• Enterprise wide cloud solutions
• Non-monolithic, multi-vendor environment
(ERP ++)
• “Fabric” of multiple low cost locations,
emerging + frontier
• Self-service models , collaboration/social
tools, millennial workforce
• Unified, optimized governance
18
Emergence of Global Business Services
Many companies are looking beyond their G&A functions
What is GBS ?
Why GBS ?
•
•
•
•
Supply Chain
Warranty Management
Logistics
Warehousing
•
•
•
•
Design & Development
Build & Test
Data Management
Support
Sales &
marketing
•
•
•
Customer Service
Marketing Communications
Inside Sales
G&A
•
•
•
•
Information Technology
Finance & Accounting
Human Resources
Indirect Procurement
COGS
R&D
•
•
•
•
•
An integrated Global Business Services (GBS) strategy
will provide your company with the next level
of efficiencies.
•
But many organizations have not yet benefited from
combining shared services and outsourcing.
•
A well executed Global Business Services (GBS) strategy is
distinctly different from the narrower focuses of shared
services and outsourcing strategies.
•
GBS identifies corporate objectives and encourages
collaboration among internal units and third party providers.
•
Collaboration can create breakthrough, strategic
operational capabilities that drive business outcomes
resulting in real marketplace differentiation.
•
A full life-cycle GBS framework requires enterprises to ensure
goal alignment, execution and ongoing governance.
•
The goal of a GBS strategy is not only to source globally, but also
to leverage shared services, outsourcing and third party
investments to advance the organization’s objectives.
Legal
Tax & Treasury
Facilities
Internal Audit
Source: Hfs Research and the London School of Economics Outsourcing Unit, 2011
Sample: 336 Buyers of Outsourcing Service
19
Company Size Influences Operating Model Trends
Company Size
($ Revenue)
According to IQPC, “84% of CEOs surveyed now consider operating model
reengineering as critical to their business success”
Co. size tends to drive level of aggressiveness
Mid to Large
$0.2 B
Large National
$2.5 B
$3.0 B
$12.0 B
Large Multinational
$15.0 B
$50+ B
Defining the Operating Model
of the Future
Optimizing Service
Effectiveness & Cost
Using the Operating Model to
Drive Strategy
• Start small, initially with a single
function (like Finance)
• Global reach to penetrate new
markets
• Focus on core business functions
and hiring
• Accelerate path to scale
advantage by using outsourcing
service providers (if appropriate)
• Grow at a reduced cost basis
• Strong interest in variable cost
models
• Most have existing shared service
centers and are expanding
• Many are pushing into hybrid
model – SSC/Outsourcing
• More activity in mid-office
functions
• Beginning the path to Global
Business Services models
• Further segregation of companies
based upon culture and
competency
• Large scale and ability to move
operations to emerging markets
• Integration of multiple centers and
governance become critical
• Hybrid delivery models and
Enterprise Business Service
models are more prevalent
• 2nd generation outsourcing –
experience
• Even aggressive cost cutting
companies are reaching plateaus
and turning to outsourcing
20
F&A Business Process Outsourcing
Considerations
Why do outsourcing deals fail?
Lessons learned from our work with clients to remediate outsourcing issues
Deals done without an integrated client team
IT leadership
Define
value
Requirements don’t translate to contract
SOW’s don’t capture real needs
and objectives
•
Change requests overload
• Cheaper isn’t good enough
One sided scope
Business
owners
Legal
•
Primary focus on outsourced functions
•
Lack of attention/definition to retained functions
Poor documentation of current state operations
Change
management/
communications
HR
Unclear definition of business goals
•
•
Leads to service provider ‘conservative’ pricing
•
Operational breaks in the chain
• Moving targets for satisfaction
• Marginalized SLA’s
?
goal
goal
1
?
goal
goal
Finance
Failure to structure the right deal
Contact term
HR
model
Service delivery
model
Incomplete or inaccurate view of total cost
of ownership
•
Lack of focus on root causes
•
Left with wrong supplier or wrong price (or both)
Not separating services from solutions in
contracting
•
Creates disconnect for service delivery
•
Can be at odds with continuous improvement
Intermingling projects and operational services
•
Can lead to duplicate costs
•
Increases possibility of excessive change orders
•
Potential for resource misallocation4
22
Thank you!
Appendix
Globalization of Operations in full swing as Investment Intentions
in both Shared Services and Outsourcing reach record high
Sources: Hfs “2014 State of Outsourcing” Study, n = 312 Buy-side Enterprises, “2013 State of Outsourcing” Study, n = 399 Buy-side
Enterprises, “2011 State of Outsourcing” Study, n = 226 Buy-side Enterprises
25
Prolific use of Offshoring Continues
Decreasing
Increasing
Q. How will your level of offshoring change in the next year? (Outsourcing)
31%
-13%
Application
Development &
Maintenance
29%
28%
26%
-5%
-5%
-4%
IT Infrastructure
Industry specific
Operations
Finance and
Accounting
21%
18%
-3%
-3%
Procurement
Human
Resources
17%
-5%
Customer
Service
Q. How will your level of offshoring change in the next year? (Shared services)
26%
19%
17%
20%
20%
-7%
-6%
-2%
-3%
-3%
Finance and
Accounting
IT Infrastructure
18%
-9%
Application
Development &
Maintenance
Source: HfS “State of Outsourcing” Study, conducted with support from KPMG
(Sample 312 Enterprises)
Industry specific
Operations
Procurement
Human
Resources
16%
-4%
Customer
Service
26
Operating Models: Outsourcing forms a Critical Lever for an
Integrated Services Model
Over the next 2 years will your company increase / reduce its reliance on the following operating
models for your general and administrative functions?
Source: Hfs “2014 State of Industry” Study, May 2014. HfS Research in Conjunction
with KPMG (Sample 312 Enterprises)
27

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