Think bigger – Be digital ready

Artificial intelligence. Machine learning. Robotic process automation. Business intelligence and analytics. Companies today have an enormous array of digital solutions to choose from – all of which have the potential to deliver a substantial impact on performance.

Many firms, however, face a critical decision on whether to make or buy the capability to deliver. They may also have existing business process outsourcing (BPO) relationships but are concerned that their strategic service partners do not have the capability or ambition to support them on their digital journey.

The good news is there are few reasons to worry about the technical capabilities of mature finance and accounting (FAO) BPOs. The Hackett Group’s recent FAO Digital World Class Matrix^™ research ranked seven major FAO service providers as Digital World Class^® (Accenture, Capgemini, Genpact, IBM, Infosys, TATA Consultancy Services (TCS) and Wipro).

Not only are they good at delivering transactional services to their clients, but their digital solutions and ability to generate value for their clients have placed them in the top 25% of their industry. This can translate into huge operational advantages.

Based on The Hackett Group’s Digital World Class metrics and compared to the average FAO service provider, these market leaders are able to deliver:

• 99% greater ability to collect receivables within terms
• 41% faster financial reporting and improved closing cycle
• 47% lower overall cost, translating into a $48 million annual cost advantage (for a typical $10 billion enterprise)

Despite this opportunity, the legacy nature of many current BPO contracts is holding back value creation: over one-half (53%) of customer respondents still list cost reduction as the prime objective of their current BPO contract.

On the other hand, more than one-quarter – 28% of clients – have already refocused their contracts toward delivering transformational capabilities, according to The Hackett Group’s research.

BPO’s Long COVID

During the disruptive pandemic years, we saw three things happen. Operating models became more fluid – no longer constrained to fixed delivery locations as home working became a necessity.

Barriers to change came tumbling down – investment in digital transformation accelerated as businesses looked to reduce reliance on human processing and increased resilience to external factors through automation.

Finally, decisions on BPO renegotiations were deferred – legacy contracts extended to allow the business to focus on other priorities. With the pandemic behind us, this priority is changing, but the majority of current BPO contracts still don’t provide a transformational framework and the digital-ready gap is widening.

Many chief financial officers (CFOs) are looking to reset and optimise their BPO service partner relationships to ensure they remain relevant to their business and will deliver or enable the value that their business expects of the finance function.

We worked with one company recently to optimise a 12-year finance BPO relationship. Previously reset by the client, the contract was not delivering the value or consistent service needed.

With our expertise, data and best practice guidance, we helped them successfully prepare for and execute a new transformational contract ahead of schedule, providing greater transparency and accountability for delivery outcomes, with key elements of the transformational programme funded through operational cost savings.

In another case we helped redesign a seven-year global finance and human resources  BPO service relationship, which was not delivering the value the client needed.

The new contract delivers improved business outcomes and moves the relationship from a commodity, transactional service to a higher performing transformational partnership better aligned to the client’s ongoing finance transformation road map – enabling it to take advantage of the latest digital practices.

Getting it right

Where should you start?

For CFOs or heads of finance, global business services and shared service who are considering the make vs. buy decision for the first time, be clear on where you are today. Set your ambition for the future, and be honest about your in-house maturity, capability, and capacity to deliver that vision. Your scale of ambition has to be matched by your appetite and willingness as a business to deliver successful change. Consider external partnering where this can accelerate delivery of your digital agenda.

For those who have existing BPO relationships and are looking for confidence that they will remain relevant to and value-generating for their business, there are four simple but critical steps:

1. Understand where you are today by baselining and benchmarking your existing contract. Are your performance, commercial and overall governance mechanisms effective and aligned to the latest transformational/digital contracting best practices?
2. Have clarity on what you want the future to look like. What role do you expect the next generation of your BPO relationship to play? Why is this important to you? How will it impact, enable or influence other initiatives that you are driving? What contract changes are necessary and why?
3. How will you articulate these new requirements and priorities to your BPO service provider? What is your strategy and plan? How will they react/respond? What is the road map for execution? Who needs to be engaged? What does success look like?
4. Finally … approach your renegotiation as a business change initiative – not a procurement exercise. Secure appropriate executive sponsorship, and be clear on how you will involve business partners in an interest-based renegotiation focused not just on improving your ongoing cost-efficiency but also on delivering the transformational capability, agility, and value that your business expects of finance.

Rapid technological advances are already transforming many companies. CFOs who see this opportunity identify the right outsourcer to help them seize it and strike deals that maximise the opportunity for both vendor and client to set their company on the right path for years to come.

 

John Sheridan leads the Outsourcing Sourcing Consultancy team within The Hackett Group’s European Business Transformation practice.

 

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