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February 6, 2012

Outsourcing: cracking the code to success

Jamie Lyon, head of employer services at the Association of Chartered Certified Accountants, talks through the findings of a report on the ongoing challenges faced by the accounting profession. A finance role in shared services is evolving, and accountants need to learn new skills to benefit from the transformation.

Photograph of Jamie Lyon, ACCASimply put, there is no turning back from shared services and outsourcing as a transformation tool. However, the transformation journey continues to be a significant challenge for many businesses and there is significant potential for businesses to unlock more value moving forward.

Businesses have increasingly sought out the benefits that can be gleaned from outsourcing and shared services over the past few decades.

This is particularly true in financial services where, over the past decade, finance leaders have looked to shared services and outsourcing to deliver greater efficiencies, better decision-making or an improved service. For example, data from advisory firm Everest Group states that more than 70% of Fortune 500 companies now use shared services or outsourcing models for their finance functions.

Implementing an effective outsourcing strategy, however, requires clearing numerous hurdles. This includes: managing the transformation change process; articulating a purpose and vision for the retained finance function; and aligning the client and provider’s transformation objectives.

Adding value

Various types of shared services and outsourcing processes can be used for a business’ financial functions. For some, it is simply a case of improving financial processes. For others, it’s about improving business performance and impacting business processes beyond the financial function.

In outsourcing, the key point as Simon Newton, vice-president of shared services at Kimberly-Clark, says is: “Do shared services and outsourcing [lead to better performance] and create more value?”

Even if they get the scope of their finance transformation right, the biggest potential obstacle for many businesses’ adventures in shared services and outsourcing is failing to manage change effectively. Ineffective communication plans, a lack of programme management skills and insufficient resources to manage change have all been cited by providers as problems they come across frequently.

Terry Balzanella, vice-president for the EXL centre of excellence for finance and accounting in Europe, says: “More often than not, we find clients ill-prepared for change management.”

This, and any ambivalence from senior non-finance leaders, can mean new rules are ignored and the change process stalls. For George Connell, Shell’s head of strategy for finance operations and its centre finance lead, “having a strategic mandate supported from the top [is] crucial”.

Even if there is leadership backing, businesses will still need to grapple with projects that could cross borders and cultures. Bridging the gap between cultures is important too.

As Patrick van Hoegaerden, finance transformation director at Coca-Cola, says: “Developing a communication and change approach that recognises everybody is quite different, is critical. Patience is important.”

Even if a business cracks all of the problems above, too often transformation has taken place without enough consideration given to the role and purpose of a business’ retained finance function and how it fits within the shared service or outsourced operation.

Anoop Sagoo, senior executive for business process outsourcing at Accenture, says: “It is difficult to conceive when you are designing a shared service model that you can get finance and accounting operation to the right level of efficiency and effectiveness without considering the retained function.”

Overstaffing, motivational problems, disengagement, duplication of effort and a lack of focus are all potential problems that can affect the retained finance function of a business. This matters because this departmental area ought to be providing the insight to boost business performance.

A business’ ability to adapt to the changes driven by outsourcing largely depends on the skills and resources within the retained finance function. This is because shared services or outsourcing typically shifts a retained team’s focus from processes to management. This creates the need for a new skill-set for those in the retained function, which involves problem-solving skills, communication skills; and influencing skills.

The final piece in the jigsaw for an effective outsourcing strategy concerns the relationship between the client and the provider. The achievement of Service Level Agreements (SLAs) does not necessarily mean a customer is satisfied.

Strong client-provider relationships go beyond the tactical delivery of SLAs. Misalignment can occur across a broad range of areas such as cultural values, targets and incentives, as well as expectations on the pace of change. These are not easy problems to avoid and they only serve to underline why building trust between the client and provider is very important.

It also means that choosing the right provider in the first place is critical. Some industry observers emphasise the importance of businesses selecting providers with experience in their sector.

Outsourcing and shared services offer numerous advantages for businesses and their finance departments but success does not happen overnight. It requires both the client and provider to make the right choices, manage the change process effectively, and build a strong relationship.

Moreover, transforming a business’ financial department is not so much about financial change as it is about employees embracing change.

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