FAO clients expect their providers to undertake analytics on transactions, gather functional insights, and then identify opportunities to improve and add value. The focus is on improving the performance of the finance function.

 

Tony Chambliss, global offering lead for F&A BPO services at Accenture articulated, “The ability to undertake analytics on transactions, understand the insights and then identify opportunities to improve and add value is what our clients expect from BPO. For F&A BPO clients we process their invoices, collate the spend, map that back to their strategic sourcing agreements and identify rogue spending outside that agreement – that is money sifting through their hands. We’re focused on finding it and 'giving it back' to help drive savings. We’re also seeing more emphasis on deep industry expertise. More and more, clients are looking for providers that have a deep understanding of the industry environment in which they operate.”

Second tier vendors are eying the mid-market and are distinguishing themselves by creating differentiated offerings. Their focus areas will be innovative value propositions such as industry-specific solutions, end-to-end processes solutions, specialized process offerings etc, strategic alliances between pure-play FAO service providers and technology providers to offer platform/SaaS-based offerings and increasing presence and foray into emerging destinations such as Africa, Latin America.

Shifting Gears

1. Buyers’ expectations revolve around transforming the processes towards best-in-class performance, although cost continues to be the key driver.

2. FAO value propositions will be shaped by verticalization of FAO services and industry-specific FAO offerings, moving away from the traditional assumption that FAO is a horizontal function. Many service providers are coming up with industry-specific FAO solutions (e.g., focused offering in travel, telecom, utility etc.). Service providers are also aligning their sales and delivery team along key verticals to make a targeted market approach.

3. Expanding role of technology will focus on augmentation/and add-on tools. As per the Everest report, “The next year will observe a stronger push on platform and BPaaS-based offerings (primarily catering to small and mid-market buyers) as service providers attempt to integrate them in their FAO value proposition.

Sachdev Ramakrishna, director marketing, Steria India added, “Historically, F&A outsourcing has not been a technology intensive service. The focus has been more on adhering to processes, backed by a strong manual work component. This is starting to change and for the first time, a growing number of F&A suppliers are offering standardized IT platforms with their F&A services. While there are challenges to overcome regarding data security, ERP architecture & integration, these options will continue to evolve, particularly in the near term for mid-market buyers who typically are more inclined to buy in standard solutions.” 

 

Saurabh Gupta, vice president Everest Group, stated technology strategies that are being deployed across all FAO:

• Tie-and-run: Limited role of technology where service provider plugs into the buyer’s existing systems to deliver pure-play BPO services

• Technology augmentation: Service provider implements tools that serve as “add-ons” around the periphery of the existing buyer systems to address specific gaps

• Core F&A technology replacement/ implementation: IT infrastructure and/or core F&A application implementation bundled with FAO services. Technology ownership resides with buyer

• Platform-based FAO: Pre-integrated applications and pre-built processes, owned by service provider, with pricing built into the FAO contract

4. The demand for analytics and other specialized F&A services such as regulatory compliance, internal audit will continue to increase.

5. Pricing models namely outcome-based and transaction-based pricing will find increased mention in FAO contracts. Chambliss spoke about how many companies are moving from just a transactional basis of BPO toward outsourcing higher value added functions in their decision making and F&PM areas. He opined, “Access to better information to communicate to their line of business owners seem to be driving more value add for the F&A organizations and making the opportunities to grow analytics and improvements in the bottom line for companies. Value propositions are centered around improvements to cash performance.” 

 

WNS has adopted several models of implementations such as- lift and shift, shift and fix, and a combination of fix whilst lifting and shifting. Tasneem Lakdawalla, business unit leader, Finance and Accounting shared, “WNS delivers a full range of FAO processes to support all functions in the CFO’s office. We perform over 650 processes ranging from simple transactions to complex analytical processes including industry-specific processes such as royalty and passenger revenue accounting. Specifically, we deliver end-to-end services across the full spectrum of finance and accounting functions, including procure-to-pay, order-to-cash and record-to-report.”

6. Demand in the emerging markets- whether it is India or Asia Pacific or Latin America- for FAO services is expected to increase this year.

Shantanu Ghosh, senior vice president and global head of practices, solutions and transitions, Genpact opined, “The reason being a lot of multinationals - which are US and continental Europe based- have done their first wave of FAO, where they obviously focused on high impact geographies like US or UK or continental Europe are now focusing on their second or third wave outsourcing through the new market. These economies are creating companies that are growing from small to medium to big and they are expanding outside their home territories. They are also looking not only from the prospects of labor arbitrage but also from the prospect of creating growth platforms along with delivering process excellence through use of process management expertise.”

7. FAO will continue to increase in the developed markets. Demand will continue to come from late adopters. These are the people who have not jumped on the FAO bandwagon earlier, but now have seen the model get proven and have got enough confidence that this works and they are therefore now coming in the market.

8. An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach.

 

Service Providers Landscape 

Driving non-linear growth through investments in technology-led solutions (platform and BPaaS-based offerings) and process-led solutions (process maturity models and frameworks)

Creating differentiated offerings through industry-specific and go-to-market strategies, specialized process offerings and bundled FAO-PO offerings to leverage synergies across the F&A and procurement functions.

Service providers will push to increase penetration in the small and mid-market buyer segments and also in emerging buyer geographies such as India, the Middle East, and APAC. They will also continue and South America, the Middle East & Africa, and Tier -2/3 locations in India etc.

The M&A activity witnessed in 2011 will continue to an extent in 2012 and 2013 with acquisition of niche players by established suppliers trying to augment their capabilities to enter newer geographies. Private equity investors looking to either invest in mid-market FAO suppliers or exit their positions held with large suppliers. 

 

 

Smriti Sharma