Finance to Go

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

A similar evaluation is now happening at Cendant TDS, where Searle is examining its SSCs in Slough (U.K.), Hong Kong, Sydney, Delhi, and Gurgaon. (The last, in India, inherited after the acquisition earlier this year of Ebookers, a U.K. online travel agency.) He’s also pushing the “multi-dimensional sourcing” message as part of his advisory board membership of the Brussels-based Shared Services and BPO Association. “Looking up and down the finance value chain to understand what needs to go where: these are questions every CFO should be asking himself,” he says.

Indian Express

Kevin Radley would go along with that. As chief operating officer and finance director of the U.K. arm of LogicaCMG, a £1.6 billion IT services and wireless telecoms provider, he’s spent much of the past 18 months masterminding the transfer of many of the firm’s U.K. finance activities to its fast-growing facility in Bangalore, where around 1,500 staff handle IT services and product development as well as run a technical support desk for customers.

The move, effective from March this year, was a result of the gradual stitching together of two finance teams following the merger of Britain’s Logica and Anglo-Dutch CMG in 2002. “There was a need to upgrade our processes to reflect larger volumes, and we needed to create a platform that could be used by the entire group,” Radley explains. Adds group CFO Seamus Keating: “It’s no longer sufficient to just have your productive, billable capacity in lower cost locations. The more of your support costs that you can do in lower-cost parts of the world, the more competitive you’re going to be.”

Today, the U.K. finance function — handling around 60,000 supplier invoices, 36,000 customer invoices, and 500,000 ledger entries a year — is split between the firm’s headquarters in London, Bangalore, and Bridgend, South Wales. “Whether they’re onsite, offsite, near-shore, or offshore, they’re all part of the same structure, following the same standards and business systems,” says Radley.

Poles Apart

One firm that has opted for the straight outsourcing route, meanwhile, is Danfoss, a €2 billion Danish manufacturer of heating and refrigeration systems. In July, the firm began to migrate transactional processes related to A/R, A/P, general ledger, and cash management and banking from 37 sites in 26 locations in Europe to a Capgemini-owned BPO centre in Krakow, Poland.

CFO Ole Steen Andersen says it took a year of internal debates about the merits of both in-house and outsourcing models to settle on the €20m, seven-year deal. As he explains, the original plan was to centralize the “less strategic parts of the finance function” within the firm’s captive operation (covering IT, logistics, admin, and HR), and to find somewhere in Europe to house this new finance arm. “But when it came to making a decision on location, we got more and more into thinking about outsourcing, relying on someone else’s experience,” he says. “Aside from the reductions in operating costs, we saw we could achieve greater visibility, consolidation and accountability, and move from a country-based organization to one that is process led.”

Outsourcing was something Danfoss had considered before. What held the firm back, says Andersen, was a misperception that they were activities only Danfoss could do: “It takes a little bit of time to get around that, to say, ‘OK, maybe it’s not really true.’ ” And now that Denmark’s largest industrial group has led the way, he expects others to follow: “Every company should at least think about it.”

Whatever model a firm selects, it should be reviewed regularly, says Cecil of EquaTerra, “to see if the blend you’ve selected is still the right fit.” That applies, of course, if the company has outsourced a chunk of finance processes: “After the initial flurry of post-contract excitement, there’s a clear danger that BPO arrangements slide into maintenance mode,” warns Simon Lindley, a London-based consultant at Orbys Consulting, an outsourcing advisory firm. But it applies just as much to SSCs. Says Tornbohm of Gartner: “SSCs don’t necessarily have service level agreements, and if they haven’t been performing to a level you’d like, you can’t penalize them, because you’d be penalizing yourself.”

One thing is certain: there’s no going back to the way things were. “Ten years ago, back-office accounting was pretty basic: finance sat next to everybody else, did debits and credits and reported up,” says Searle of Cendant TDS. “Today there are so many options available.”

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