Finance to Go

The steady growth of the outsourcing industry is forcing CFOs to look afresh at the entire finance value chain.

Call it a sign of the times. In late 2003, GlaxoSmithKline (GSK), the £20 billion ($35 billion) U.K.-based pharmaceuticals company, began a project to uproot its U.K. financial shared services centre and move it to India. In August this year, it agreed to hand over the running of the offshore operations — including processes such as accounts payable, inter-company and financial reporting, payroll, and travel expenses — to Genpact, GE’s business process outsourcing (BPO) unit. “The decision was taken after a full review. We decided that these services could be provided at a lower cost, while maintaining our current service standards,” says David Mawdsley, a GSK spokesman.

What was a trickle of outsourcing deals last year (see “Outward bound,” CFO Europe, October 2004) is becoming a stream. Last month, for example, another heavyweight — Anglo-Dutch consumer goods firm Unilever — said it was looking at outsourcing a cluster of finance, HR and IT processes, identifying IBM and Accenture as potential service providers. According to Gartner, the technology research firm, European companies have so far signed around 70 finance and accounting (F&A) deals of various sizes and durations, with a typical value of between €40 million and €100 million ($34 million and $85 million). And they’re set to increase: Gartner predicts that by the end of 2006, 12 new major deals will be signed in the region.

The reason for the growth is compliance, says Cathy Tornbohm, London-based research director at Gartner. As firms look to “achieve global compliance with their own methodologies and to have that documented better, services such as the management of the general ledger and inter-company reporting will increasingly be outsourced,” she claims. And as providers demonstrate longer track records in managing third parties’ affairs, “comfort levels will rise” among clients, adds Bob Cecil, global F&A practice leader at EquaTerra, an outsourcing advisory firm in Houston.

Over to You

For many finance chiefs, however, the idea of relinquishing control of even low-level finance processes is one they struggle with — mostly because of the difficulty of achieving suitable management oversight and control from a distance. Add to that the fear of valuable data falling into competitors’ hands, the erosion of in-house knowledge, and the possible degradation of service levels during the handover, and the whole proposition can seem too risky to consider. In fact, in a September survey of 500 finance executives at mid-sized to large firms, industrial property insurer FM Global found that a high proportion of respondents — 84 percent in the United Kingdom, 59 percent in Germany, 48 percent in France — view their concerns about the risks associated with outsourcing as “moderate” to “high.”

Attitudes like these are understandable, notes Phil Searle, CFO of Cendant TDS International Markets, the $2 billion U.K.-based division of Cendant, a $20 billion U.S. hospitality services group. While processes like accounts payable (A/P) and receivables management may be “non-core, they are what I call ‘mission-critical,’ ” he says. “If these things fail, it doesn’t matter how non-core they are; they can destroy your business.”

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