Finance and Accounting Outsourcing to Reach $48 Billion

The global market for outsourcing finance and accounting functions is expected to grow at a 9.6% compounded annual growth rate (CAGR), and top $47.6 billion in 2008, according to a new report from IDC.

Altogether, the study presents the worldwide and U.S. finance and accounting (FA) business process outsourcing (BPO) market forecast and analysis by major region and distinct FA sub-processes, such as transaction management, finance, general accounting, treasury and risk management, and tax management, that make up the FA function.

According to the study, finance and accounting is not expected to become a fully outsourced function in the foreseeable future. "However, the scope of the FA BPO process will increase over time by embedding multiple FA functions and streamlining cross-function processes, such as procure-to-pay or order-to-cash," the report added.

Spending on outsourcing of the transaction management function is expected to grow the fastest, at 9.8%, over the next five years, the market researcher pointed out.

Spending on outsourcing of tax management is expected to grow by 9.3% per year over the next five years while spending on general accounting functions is expected to grow 8.3% per year over the same period.

Accounts payable remains the most widely outsourced FA function, IDC noted.

"The finance and accounting BPO opportunity is one of the largest and fastest growing BPO segments," said Anna Danilenko, program manager, Consulting and FA BPO Services. "As the opportunity matures, corporate buyers will increasingly be looking at FA vendors to provide an expanding range of services, collaborate on building full-scope back-office solutions, and solve strategic business challenges."

From a regional standpoint, the study figured that the U.S. will remain the largest FA business process outsourcing (BPO) market.

However, the region that encompasses Europe, the Middle East and Africa (EMEA) is expected to be the fastest growing one in terms of FA BPO spending in the short- to mid-term.

As is usually the case, cost cutting is still the primary reason companies outsource FA. However, the need to solve strategic business issues is increasingly driving FA BPO spending globally, IDC added.

The study also pointed out that processing services, business advisory services to senior finance executives, and services opportunities around financial compliance are expected to serve as the most effective leads into FA BPO arrangements.

It also noted that mergers and acquisitions among FA BPO vendors will continue to accelerate as providers aim at gaining market share, expanding into key regions and acquiring specialized business process and consulting expertise.

Outsourcing of Finance and Accounting Functions Likely to Grow, According to Study by Accenture and EIU

Executives View Outsourcing as ‘Strategic Weapon for Change'

NEW YORK; June 17, 2003 – The outsourcing of finance and accounting functions is primed for growth, with more than 70 percent of senior executives predicting that demand will beccome even more prevalent over the next three years, according to a study released today by Accenture and the Economist Intelligence Unit (EIU).

The study, which examined finance and accounting outsourcing, consisted of an online survey of senior executives from 236 companies representing a variety of industries across North America, South America, Europe and Asia. The survey was complemented by one-on-one interviews with senior executives at another 44 companies globally.

Approximately 30 percent of the companies that participated in the survey reported that they outsource finance and accounting functions, with two-thirds of those (65 percent) characterizing the arrangement as successful (57 percent) or very successful (8 percent). And, while cost savings and increased productivity are key motivators for outsourcing, the study determined that finance and accounting outsourcing is increasingly being used as a catalyst for business transformation.

“Cutting costs and enhancing productivity remain prime motivators, but it's clear that some companies see outsourcing as a strategic weapon for change,” said Stewart Clements, global managing partner for Accenture Finance Solutions, which provides finance and accounting services on an outsourced basis. “Outsourcing brings an outsider's discipline to reviewing and reshaping entire business processes, helping companies execute ambitious improvement plans.”

Indeed, commentary from respondents who participated in the one-on-one interviews with the study's researchers supported the view that companies are increasingly leveraging outsourcing for strategic benefits. “We needed a fast turnaround, so we turned to Accenture to help us centralize several functions, including finance,” said Marco Trecroce, group business transformation and operations director, Thomas Cook UK. “Thanks to our arrangement with Accenture, which we call co-sourcing, we've transformed our finance function and created a shared service center and customer-oriented culture for the company.”

According to the study, the finance and accounting function most commonly outsourced is payroll, with 27 percent of the survey respondents who outsource reporting that they outsource this function. Budgeting and forecasting are the two finance and accounting functions least likely to be outsourced. Not surprisingly, the survey indicated that executives are more inclined to outsource generic finance processes than core operations.

Other key findings of the study:

• Surprisingly, 82 percent of survey respondents who said their companies outsource finance and accounting said they have no formal metrics in place to measure the success of the outsourcing arrangement. “Metrics clearly encapsulate the arrangement objectives, provide a focus for delivery and clearly measure the results,” said Clements.
• Two-thirds (66 percent) of respondents who said their companies outsource some finance and accounting functions cited lower costs as the primary benefit of outsourcing. For instance, a French specialty chemicals company reported that it reduced its finance and accounting costs by 30 percent in two years by outsourcing these functions.
• Respondents reported that the benefits of finance and accounting outsourcing transcend cost reduction, with 32 percent pointing to increased business productivity on the part of the finance team.
• More than 55 percent of those surveyed felt that finance outsourcing sharpens the focus on core competencies, a key enabler in business transformational change.
• The drawbacks of outsourcing cited most often by survey respondents were the risk of valuable data falling into competitors' hands (52 percent), the risk that the cost of outsourcing will exceed expectations (48 percent), and the erosion of in-house knowledge (45 percent).
• While the study did not break out findings by region, it determined that the outsourcing of finance and accounting is gaining acceptance in the Asia Pacific region, where it is not yet as common as in the United States or Europe. Economic expansion, especially in China, is one reason for the anticipated growth in Asia.

The study also includes a list of what Accenture refers to as the “golden rules” of finance and accounting outsourcing, which include tips on how to address typical outsourcing issues. “This is a valuable tool that codifies the experiences of participants and can help other companies make their finance and accounting outsourcing experiences a success,” said Clements.