Outsourcing finance and accounting functions is never an easy decision for the CFO.
Outsourcing finance and accounting functions is never an easy decision for the CFO. Aside from giving up internal controls, buyers must consider compliance concerns, loss of internal competencies, and perhaps the second-most important choice: who to employ as the service provider.
After all, the selection of provider can mean the difference between a successful engagement and regrets later on. There are plenty of vendors in the FAO space, especially in meat-and-potato services such as AP, AR, and general ledger. But culling out the right one is more than considering pricing; entrusting important F&A functions in a provide requires careful consideration of capabilities, a cultural fit, regions served, offshore presence if required, and other factors. According to industry advisors, the vendor selection process begins long before request for proposals go out.
“The initial activities that must take place for BPO success are introspective and occur before a buyer even considers selecting a service supplier. The buyer must decide what process(es) will be outsourced and develop its BPO strategy,” said Phil Fersht, vice president, BPO Group at the Everest Research Institute. According to Fersht, successful engagements in business process outsourcing (BPO) often involve vendor selection taking place over five phases. They are:
· Introspection and research
· Courtship
· Dating
· The proposal
· Commitment
In the first phase, buyers should establish the boundaries of outsourcing such as which services are in-scope and which are out. Vendors, no matter how effective they are, can never determine what should be outsourced. Also in this phase, buyers need to determine what risks are acceptable and what are their targets.
In the courtship phase, buyers take a close look at the providers and try to find one that closest meets their needs. Questions such as what is the provider’s industry focus, can it scale up to meet delivery requirements, is it financially stable, and does it have previous experience with the same type of buyer are asked. This is the most important step in determining vendor ability and whether they can help with change management.
In phase 3, providers are asked for request for proposals, and both sides assess each other. For instance, the buyer has an opportunity to visit delivery facilities, assess technology fit, develop solutions, and review proposals. For the provider, it develops the proposal or determines whether it’s a client it should pursue.
In the next stage, the two sides begin laying the foundation for their outsourcing program by developing service levels and descriptions, pricing, governance model, transition plans, and other steps needed to shift the service to the provider.
Finally, the two sides commit to the deal, knowing that it is either a win-win or lose-lose situation. For buyers, this means adopting a new workflow as well as a new mentality. Inflexibility to providers’ technology and processes can diminish the value of outsourcing, so a commitment to change is necessary.
“Many BPO buyers are leveraging their suppliers’ delivery expertise to drive process rigor based on Six Sigma and LEAN methodologies that their organizations previously did not experience. The key to leveraging the supplier’s resources is that the buyer must be prepared to leave behind its process ownership,” Fersht added.
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